Please help me answer those questions

Suppose that the economy is well described by the ISLMADAS model with partially sticky prices studied in class. In your answers below, keep in mind the consumers\" and firms\" Optimal decisions that give rise to the model and explain how and why agents\" decisions change. 1. Suppose that the degree of price exibility in the economy increases, such that the parameter 7 in our price determination equation Pt=P+7(KYirf) changes. Explain how this change affects the effectiveness of scal policy. In particular, how do the responses of Y, P, N, r, and w, to a given shock in G, change when 7 changes? 2. (10 marks) Suppose that the economy is sitting at its frictionless longrun equilibrium (Yt : th). Suddenly, there is an international shock that decreases the average production cost in the economy (15 decreases). De- scribe the new shortrun equilibrium of the economy. In particular, explain the effect on the output gap, employment level, price level, interest rate, and real wage rate. How different would have been the macroeconomic effects of the shock absent the change in price exibility 7? 3. (10 marks) Given the reduction in 13, the government decides to pursue an unexpected program of scal austerity in which Gt reduces signicantly and Gt\" is expected to gradually increase. Explain the rationale of this policy as a way to stabilise output around potential. Discuss the effects of this austerity policy on consumption, investment, output, employment, prices, real interest rate and employment. 4. (10 marks) Now, suppose that, right after the reduction in P, and before the implementation of scal austerity, the real interest rate was near the ZLB (rt : it wf+1 with it a; 0). How would your answer to the previous question change? What are the macroeconomic risks of implementing scal austerity in this context? What policy would you have preferred to stabilise the economy around potential output instead