Part I: Business Cycle Analysis & Numerical Problem 1. [8 points] In this question you are asked to conduct SR business cycle analysis using the models studied in class; specifically the goal is to analyze the impact of an exogeneous shock on the economy using the model developed in class, where the analysis is conducted under under the assumptions specified our model and assuming ceteris paribus (as is done throughout the course). The IS-LM diagram and the AD-AS diagram must also be used to conduct the analysis. Suppose that there is a FALL in Income Taxes (fall in T; i.e. taxes on income, not taxes on capital). Analyze the impact of this exogenous shock on the economy in the short-run (SR) only by completing the following a. Show/illustrate the impact of the shock on the IS-LM diagram. Clearly label all curves, the movement in which the curves are shifting, the initial vs. final equilibrium (and hence initial vs. final equilibrium values), and the axes. [points will be deducted if the diagrams are not labeled correctly]. Do not discuss yet. b. Show/illustrate the impact of the shock on the AD-AS diagram. Clearly label all curves, the direction in which the curves are shifting, the initial vs. final equilibrium (and hence initial vs. final equilibrium values), and the axes. [points will be deducted if the diagrams are not labeled correctly]. Do not discuss yet C. Use the model, to analyze the impact of the shock by providing an intuitive discussion of the impact in the SR. The discussion MUST provide economic reasoning of the transmission of the shock through the economy (i.e. the channels of transmission), as done in lecture. The impact on the endogenous variables of the model should be provided (as done in lecture). Be complete [use full sentences]. Remark: answers should be no more than 200 words (note that answers do not need to be typed). See videos for examples of how to conduct business cycle analysis using the models developed in this class; all the variables that must be discussed in the analysis are discussed in lecture/videos. d. Given the shock analyzed above, did the interest rate (1) act as an automatic stabilizer? If so, then explain the process referring to the specific situation in this