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could you answer this question please 6. {10 pts each) Think about the following model where aggregate supply is given by: Y = S +

could you answer this question please

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6. {10 pts each) Think about the following model where aggregate supply is given by: Y = S + ZR 2 > 0. The components of the aggregate demand are given as: C=C+bDIcP DI=(lt)Y I=fdi G=C+W NX=O Money demand and supply are given by: M'=m Md=hfi+eY All constants (6', f, G', t, d, c, z} are pOsitive and assume that h > m. ASsume that the values of these constants are in such a way that equilibrium price level is positive, and expansionary policies increase output where as contractionary policies decrease it. (a) Solve for the equilibrium condition in the money market. Then characterize the AD curve. Find equilibrium GDP and the price level. How much does the AD curve shift if autonomous government spending increases by 1'? What would be the change in equilib- rium GDP if autonomous government spending changes by 1 unit? Are the answers the same? Why/Why not? (b) Assume that m increases. What happens to equilibrium GDP and the price level? Derive the e'ect mathematically, and explain the mechanism using proper terminology

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