Please provide answer with justification:

Part 2: True or False questions with justification (30 points) Evaluate carefully each of the following statements. Decide if they are True, or False. You must explain clearly the reason(s) why the statement is true or false. You should provide a pre- cise justification, including the transmission mechanisms using words and graphs if needed. Your mark will depend on the quality of your response. 1. While monetary policy can be effective at increasing the level of output beyond its natural level in the short run, it becomes ineffective in doing so in the medium run. (5 points) 2. Consider an open economy with fixed prices. If the government spending and taxes in- crease by the same amount, this will not have any impact on net exports since the interest rate would not change. (5 points) 3. The aggregate supply relation suggests that an increase in output leads to an increase in the price level. (5 points) 4. Consider a closed economy with fixed prices. Suppose that the government implements a fiscal consolidation policy. If the central bank wants to counteract the effect of the govern- ment policy on output, it must implement a contractionary monetary policy. (5 points) 5. Consider an open economy with flexible prices and flexible exchange rate. If the govern- ment reduces its spending, this will have a positive impact on net exports and could have a negative impact on the output of its trade partners. (5 points) 6. Consider a closed economy with fixed prices. An increase in government spending de- creases investment expenditures. (5 points) 7. The short-run effects of a change in the money supply on output is reduced when the IS curve becomes steeper? (5 points) 8. Bonus question: Consider a closed economy where government spending is endogenous in the sense that government must spend all its tax revenue. The latter is a fixed propor- tion t of output: G = tY. An increase in the marginal tax rate, t, will reduce equilibrium output. (2 points)