Question 2: Neoclassical vs New Keynesian

a. Graphically analyze the effects of an increase in government spending Gtin the Neoclassical and partial sticky price model (New Keynesian).Comparethe magnitudes of the changes ofeachendogenous variable. Show your work

b. True or False: "According to Neoclassical theory, demand shocks not only affect the composition of output between consumption and investment, but also can result in movements in output and labor market variables" Explain!