Need help with the following questions.

Name ___________________________________________ last 4 PSU ID ___________ HOMEWORK #10 (40 points total) Economics 351 online Read these instructions carefully! Carefully answer each of the questions below. You need to show your work, not just the final answer You can write or type your answers for the questions Please put your name and PSU ID number at the top of the 1st page You may use as many sheets of paper as you need. Be sure your assignment is all on one PDF file. Failure to submit a single PDF file will result in points being deducted. Before you upload, check your PDF to make sure we can read it and it can be opened. After you upload, go to the top right of that page where you can click on Submission Details to see how your document looks and if it was submitted correctly. o This is a screenshot of what the page looks like: http://www.screencast.com/t/i1HlRbLkLLw8 (links to external site) Click on View Feedback link on the next page to see a preview of the document If you did parts by hand: o Scan your entire document (including the parts you typed and the parts done by hand) o Save the file on your computer (.PDF format preferred) and then upload it to the dropbox for this homework assignment. o Merge the separate PDFs into one file using a service such as (PDFMerge!) If you typed everything: o Save the file on your computer as a PDF, and then upload it to the dropbox for this homework assignment. 1 1) Consider an economy described by the following: a) (5 points) Derive an expression for the IS curve and MP curve. b) (5 points) Derive an expression for the aggregate demand curve. Draw three diagrams with the monetary policy curve and IS curves on top next to each other and the aggregate demand curve below (15 points for correct and completely labeled diagrams) c) (5 points) We consider two inflation rates to 'pin' down our curves. Let point A represent conditions where inflation = 1% and point B represent conditions where inflation is 2%. d) (5 points) Suppose the Fed increases to 3. Solve for the equilibrium output and the real rate of interest and label on your diagrams as point C. Assume inflation remains at = 1% ( =1). e) (5 points) Why might the Fed increase ? 2