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Please answer this question, thank you so much! 2. Consider a closed economy that is initially in full-employment equilibrium, and suppose a boom in consumer

Please answer this question, thank you so much!

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2. Consider a closed economy that is initially in full-employment equilibrium, and suppose a boom in consumer confidence leads to a large increase in consumption. A. (7 points) Use the aggregate supply and demand framework to illustrate the short-run and long-run effects of the consumption boom on output and the price level, assuming that monetary policy keeps the money supply constant, and fiscal policy remains unchanged. Briefly explain how the self-correcting mechanism takes the economy from the new short-run equilibrium to the long-run equilibrium. B. (7 points) Use the IS-LM model (with zero expected inflation) to analyze the short-run and long-run effects of the consumption boom on output, the real interest rate and the price level, assuming that monetary policy keeps the money supply constant, and fiscal policy remains unchanged. Briefly explain how the self-correcting mechanism is reflected in your IS-LM analysis. C. (6 points) Use the money supply and demand diagram to explain the interest-rate changes in your answer to Part B. Show the graphs for both the change in short-run equilibrium and the transition from the new short-run equilibrium to the long-run equilibrium. D. (6 points) Briefly, explain why the central bank may decide not to keep the money supply constant under these circumstances. Illustrate your answer referring to the figures you used for your answers to Parts B and C

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