Question 22 (30 marks) Answer each part by using well-labelled graphs for the IS-LM, WS-PS and AS-AD models:

a)Assume that a large influx of refugees enter the workforce, who are prepared to work at lower wages, explain how natural rate of unemployment would change. (7 marks)

b) Assume that the RBA decided to increase its price target, analyse how the economy would adjust to a medium-run equilibrium. (8 marks)

c) Would your answer to (b) change if the economy was in a liquidity trap? Explain. (7 marks)

d) Suppose the Central Bank tries to persuade everyone that it is necessary that the Bank to raise interest rates. This would mark the end of the post-Lehman crisis era and the start of the return to "normal", thereby increasing people's expectations of future interest rates. Explain what the effect would be today on equilibrium output. (8 marks)