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odel (26 points) Assume the economy behaves according to the assumptions in the IS/MP/IA model. Assume the economy begins at full employment. 2.1. Using the

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odel (26 points) Assume the economy behaves according to the assumptions in the IS/MP/IA model. Assume the economy begins at full employment. 2.1. Using the space below, illustrate IS/MP (top panel) and AD/IA diagrams (bottom panel) below. Be sure to carefully label the axes, curves, and initial equilibrium Point A. You must label the axes using words and symbols. Label equilibrium values and full employment on your diagrams. [4] 2.2. Suppose there is an increase in business confidence. Which exogenous variable in the model is changing? Use the notation from class and state in words. [1] 2.3. Illustrate the short-run effects of the change mentioned in #2 on your diagrams above. Clearly label any new curve and equilibrium values. Label the new short run-equilibrium Point B. [4]

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