Q4. Consider the Sticky price model that we discussed during the lecture, and suppose that

The firms with flexible prices follow =+(),

The firms with sticky prices follow the same rule but take the expectation of the RHS, i.e. =[+()].

where =2, =100, =60, =0.25

a) Derive the SRAS curve and draw the figure of it (with LRAS curve).

b) Derive the SRAS curve when =120.

c) Derive the SRAS curve when =60 and =0.5