Problems: remember to document every step, label each diagram and give economic intuition. In all questions, use the baseline model where prices adjust both in the short- and in the long-run. In all questions, start with the economy in equilibrium with output at its natural level. In the answers use both diagrams and words to explain your reasoning. 1. Suppose the economy experiences an increase in productivity (the variable A in our model). - Discuss the short- and long-run effects of this shock on the economy in absence of policy intervention. In particular, discuss the effect on output, consumption, investment, unemployment, real wages and interest rate. - Now consider monetary policy options. Suppose the central bank can promptly respond to the shock. What would a monetary expansion achieve in terms of output and prices in the short and long-run? What about a contractionary policy? Problems: remember to document every step, label each diagram and give economic intuition. In all questions, use the baseline model where prices adjust both in the short- and in the long-run. In all questions, start with the economy in equilibrium with output at its natural level. In the answers use both diagrams and words to explain your reasoning. 1. Suppose the economy experiences an increase in productivity (the variable A in our model). - Discuss the short- and long-run effects of this shock on the economy in absence of policy intervention. In particular, discuss the effect on output, consumption, investment, unemployment, real wages and interest rate. - Now consider monetary policy options. Suppose the central bank can promptly respond to the shock. What would a monetary expansion achieve in terms of output and prices in the short and long-run? What about a contractionary policy