Provide solutions to the following
6. Suppose an economy is in long-run equilibrium a. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short- run and long-run aggregate supply. b. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium (call it point B). C. Now show the new long-run equilibrium (call it point C). What causes the economy to move from point B to pint C (assuming there is no change in policy)? d. According to sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? how do nominal wages at point A compare to nominal wages at point C? e. According to sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? f. Judging by the impact of the money supply on nominal and real wages, is this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run?10. (30 Points) In a two-fnm market, let the marginal cost of producing a product be $20, the market demand be given by the function Q = 60 P / 2 and the market quantity be equal to Q1 + Q2- a) (10 Points) Calculate the Cournot equilibrium quantity each rm would produce in this market. What's the equilibrium price? b) (8 Points) Draw the best response function diagram corresponding to your solution. Cournot equilibrium occurs at the point where the two best response functions intersect. 7. LO 3 Suppose that, in the basic one-period mod- el, there is no government spending and no taxes. Production by the representative firm produces pollution in proportion to the amount of out- put produced. Given any consumption bundle (a consumption-leisure pair), the consumer is worse off the more pollution there is. (a) In a diagram, show the competitive equilib rium and the Pareto optimum. Show that the competitive equilibrium is not Pareto opti- mal, and explain why. Is more or less out- put produced in the competitive equilibrium than at the Pareto optimum? Explain. (b) Now, suppose that the government imposes a proportional tax t on the output of the firm, and rebates the proceeds of the tax in a lump- sum fashion, as a transfer TR to the represent- ative consumer. Show that the tax can be set in such a way that the competitive equilib rium is Pareto optimal. Explain your results.prohibited subsidy: why Of 6. The WTO is a multilateral trade organization with mem- ber nations from all regions of the world. The majority are developing countries. The WTO agreements permit coun- tries to enter into bilateral or regional trade pacts, or to cre- ate free trade areas and customs unions. Yet a free trade area only has free trade between the countries that belong to it. a. How does the concept of a free trade area, such as the North American Free Trade Agreement (NAFTA) or any other regional FTA, fit into the WTO global framework? Do bilateral pacts or regional free trade areas violate the principles of nondiscrimination and MFN trade? Do they violate the spirit of the WTO, or do they actually contribute to its goals? b. Why do you think many countries have entered into bilateral and regional trade agreements since the inception of the WTO in 1995, thus bypassing the WTO structure
