Q# 6 Suppose the central bank's short-run response to any change in the economy is to change the money supply to maintain the existing real interest rate. What would happen to money supply if there were a reduction in government purchases? Given the Fed's policy, what would happen in the very short run (before general equilibrium is restored) to output and the real interest rate? What must happen to the LM curve and the price level to restore general equilibrium? Q#7 Drive aggregate demand (AD) curve? Why does the AD curve slope downward? Give two example changes in the economy that shift the AD curve up and to the right and explain why the shifts occur? Q#8 Suppose you were a forecaster of the real wage rate, employment, output, the real interest rate, consumption, investment, and the price level. A shock hits the economy, which you think is a temporary adverse supply shock. (a) What are your forecasts for each of the variables listed above (rise, fall, and no change)? (b) What if the shock was really due to people's reduced expectations about their future income Q#9 Use the IS-LM model to determine the effects of each of the following on the general equilibrium values of the real wage, employment, output, real interest rate, consumption, investment, and price level. a. A reduction in the effective tax rate on capital increases desired investment. b. The expected rate of inflation rises. C. An influx of working-age immigrants increases labor supply (ignore any other possible effects of Increased population)