Question 1 (20 points): Use the Real Intertemporal Model to show the effects of a permanent decline in TFP on output, employment, real interest rates, real wages, consumption, and investment.

Question 2 (10 points): Let prices be flexible. Use the money market graph to show the effects of a recession in which output declines and real interest rates increase on the price level and the quantity of money. What explains the empirical observation that the quantity of money is pro-cyclical and prices are uncorrelated with output fluctuations?

Question 3: Answer the items below using the Real Intertemporal model: a) (20 points) Show the effects of a temporary increase in government spending on output, employment, real interest rates, real wages, consumption, and investment. Then show that the fiscal multiplier is less than one and explain why it means that consumers are worse off after the policy. b) (10 points) Suppose that there is no intertemporal substitution of leisure and that workers supply ?? hours of labor at any real wage (the supply of labor is inelastic). Use the graphs in item (a) to explain what is the size of the fiscal multiplier.

Question 4 (20 points): Suppose prices are sticky and that there is a negative shock in future TFP. Use the New Keynesian Model to show that, in the short-run, the economy will face a positive output gap. Then, explain how the FED adjusts the supply of money to close this gap.

Question 6 (20 points): Answer one of the following questions about inflation expectations. a) In a graph with prices in the vertical axis and quantity of money in the horizontal axis and under the assumption of flexible prices, show how central banks can use public speeches that influence inflation expectations to conduct monetary policy when the economy is in a liquidity trap. b) Draw the aggregate demand function in a graph with real interest rates in the vertical axis and output in the horizontal axis. Then draw a graph depicting the Phillips curve. Use this framework to show how the FED can use public speeches that influence inflation expectations to lower inflation

Please Provide What The Graphs Should Look Like.

1) RS to exit full screen Fall 2023 Name: Intermediate Macroeconomics Midterm 2 In all questions, assume the economy has a representative consumer and a representative firm with the usual preferences and production function. Always assume that substitution effects are stronger than income effects. Also, when answers depend on the magnitude of the effects, clearly state which assumptions you are making to arrive at your conclusions. Make sure to label axes and curves. Question 1 (20 points): Use the Real Intertemporal Model to show the effects of a permanent decline in TFP on output, employment, real interest rates, real wages, consumption, and investment. Question 2 (10 points): Let prices be flexible. Use the money market graph to show the effects of a recession in which output declines and real interest rates increase on the price level and the quantity of money. What explains the empirical observation that the quantity of money is pro-cyclical and prices are uncorrelated with output fluctuations? Question 3: Answer the items below using the Real Intertemporal model: a) (20 points) Show the effects of a temporary increase in government spending on output, employment, real interest rates, real wages, consumption, and investment. Then show that the fiscal multiplier is less than one and explain why it means that consumers are worse off after the policy. b) (10 points) Suppose that there is no intertemporal substitution of leisure and that workers supply N hours of labor at any real wage (the supply of labor is inelastic). Use the graphs in item (a) to explain what is the size of the fiscal multiplier. of 2 zooM + TR of 2 O o al Question 4 (20 points): Suppose prices are sticky and that there is a negative shock in future TFP. Use the New Keynesian Model to show that, in the short-run, the economy will face a positive output gap. Then, explain how the FED adjusts the supply of money to close this gap. Question 6 (20 points): Answer one of the following questions about inflation expectations. a) In a graph with prices in the vertical axis and quantity of money in the horizontal axis and under the assumption of flexible prices, show how central banks can use public speeches that influence inflation expectations to conduct monetary policy when the economy is in a liquidity trap. b) Draw the aggregate demand function in a graph with real interest rates in the vertical axis and output in the horizontal axis. Then draw a graph depicting the Phillips curve. Use this framework to show how the FED can use public speeches that influence inflation expectations to lower inflation