question 2 is below and need help solving

3. [13 marks] Consider the joint shock of the increase a." and decrease in 2" from Question 2, but under the New Keynsian model, whereby the price level is xed in the short run, and the interest rate is the target of monetary policy. Suppose that following the shock the economy in the short run cannot move to the new long run equilibrium. Show and explain the effects of: (i) a monetary policy that increases M; {ii} a scal policy that increases (3". Which of these two policies would he more eifective for the price level, consumption, investment, the real interest rates [safe and risky}, aggregate output, employment, and the real wage? 2. (26 marks} Consider now the full intertemperal model in which in addition to the goods and labour markets, the money market also clears. The supply of money is determined exogenously by the central bank. The demand for real money balances of consumers and rms is given by A"; = L{Y, R) which depends positively on real income 1" [transac tion motive] and negatively on the nominal interest rate R [opportunity eost of holding money]. For this question assume that rms and eensumers reeeive the safe interest rate '1" when lending, but have to repay the risky rate rs = r + I when borrowing. Note that 5.." is the default premium, that captures peroeiyed credit market uncertainty. The eoonomy is initially in long-run equilibrium. Suppose that a pessimism shock hits the economy whereby credit market lmeertainty .1: increases today, and TFP in the future 3' is expected to fall