Medium-Run Macroeconomics: IS-LM-PC, AD-AS Question 1 The labor market is characterized by the following equations W/ pe = 10 -Z - 10U Y = N; Z = 9; L = 600; M = 1 where Z = unemployment benefits, u = markup, pe = expected price level, L = labor force, N = employment level, U = unemployment rate. Ma / p = 5Y - 1200r and M = 10,0001 =100 - 2007 + 0.1Y C=120+04(Y -T) G = 400; T = 400. a) i) derive both the AD and AS curves ii) provide a sound economic intuition for the signs of their slopes b) what is the natural level of output in this economy? c) What is the equilibrium level of output in the short run if the expected price level P is 4? Question 2 Consider an economy that incorporated the price of energy inputs (e.g. oil) explicitly into the AS curve. Suppose the price-setting equation is given by P =(1+6)Wepta where Pg is the price of energy resources and 0