For the following questions suppose we have a standard IS-LM-FE Model as described in class. If something is indeterminate (because of opposite directions of shifting) say so and do not worry about having to pick something larger than another. (a) Suppose people in our model get good news about the future. That is they believe that productivity (TFP) will be higher in the future forever. Show on a graph what happens initially to the IS-LM-FE curves. (b) Using our situation in (a) where would the short run equilibrium be? (Recall this is the intersections of the IS-LM curves) What happens to employment relative to full employment levels? What happens to the interest rate and output in the economy in the short run? (c) From our situation in part (a) we now arrive at the next period where TFP is higher forever. Show what happens on a graph to our IS-LM-FE curves relative to before (a). (This is the same as having a permanent change to TFP today and forever from this point on you no longer need to worry about the past) (d) Using our situation in part (c), where would the short run equilibrium be? What happens to employment relative to full employment levels? What happens to the interest rate and output in the economy in the short run? (e) Finally from part (d) what happens in the long run? Show graphically how the economy adjusts in the long run (if at all). What happens to the price level? (f) One last situation starting from general equilibrium. Suppose that the government decides to decrease government spending as it's worried about the deficit. Show on a graph what happens initially to the IS-LM-FE curves? (g) Using our situation in (f) where would the short run equilibrium be? What happens to employment relative to full employment levels? What happens to the interest rate and output in the economy in the short run? (h) Finally from part (g) what happens in the long run? Show graphically how the economy adjusts in the long run (if at all). What happens to the price level? For the following questions suppose we have a standard IS-LM-FE Model as described in class. If something is indeterminate (because of opposite directions of shifting) say so and do not worry about having to pick something larger than another. (a) Suppose people in our model get good news about the future. That is they believe that productivity (TFP) will be higher in the future forever. Show on a graph what happens initially to the IS-LM-FE curves. (b) Using our situation in (a) where would the short run equilibrium be? (Recall this is the intersections of the IS-LM curves) What happens to employment relative to full employment levels? What happens to the interest rate and output in the economy in the short run? (c) From our situation in part (a) we now arrive at the next period where TFP is higher forever. Show what happens on a graph to our IS-LM-FE curves relative to before (a). (This is the same as having a permanent change to TFP today and forever from this point on you no longer need to worry about the past) (d) Using our situation in part (c), where would the short run equilibrium be? What happens to employment relative to full employment levels? What happens to the interest rate and output in the economy in the short run? (e) Finally from part (d) what happens in the long run? Show graphically how the economy adjusts in the long run (if at all). What happens to the price level? (f) One last situation starting from general equilibrium. Suppose that the government decides to decrease government spending as it's worried about the deficit. Show on a graph what happens initially to the IS-LM-FE curves? (g) Using our situation in (f) where would the short run equilibrium be? What happens to employment relative to full employment levels? What happens to the interest rate and output in the economy in the short run? (h) Finally from part (g) what happens in the long run? Show graphically how the economy adjusts in the long run (if at all). What happens to the price level