S1b and S1c and if youre feeling real crazy S1d but 1b and 1c i need, I can't figure out how to do. If you could please show steps on how to solve thank you.

Name _________________________________ Date _________ last 4 PSU ID _______ Economics 304 -- Homework Lesson 9 --92 points Instructions: Please show all work or points will be taken off. Good luck! 1. Consider the following model of the economy: where the initial values of A = 6 and K = 10. The initial conditions in the goods market are as follows: G = 100 T= 100 The initial conditions in the asset market are as follows: L = 78 + 0.5Y- 1000(r + e) Nominal Money supply: M = 1800 Expected inflation is equal to 2% (e = 0.02) 1 a) (6 points) Solve for the labor market clearing real wage (w*), the profit maximizing level of labor input (N*), and the full employment level of output (Y*). Please show your work. w= N* = Y* = 1 b) (10 points) Draw two diagrams vertically with the labor market on the bottom graph and the production function on the top graph. Be sure to label everything including this initial equilibrium point as point A. (10 points for completely labeled and correct diagrams) 2 c) (4 points) Derive an expression for the IS curve (r in terms of Y). Please show all work IS Equation: d) (3 points) Find the real interest rate that clears the goods market. Please show all work 3 r= e) (3 points) Find the price level needed to clear the money market. Please show all work P= f) (4 points) Find the expression for the LM curve (r in terms of Y). Please show all work LM Equation: 4 g) (40 points) Now draw four separate diagrams: (40 points total) Top left: a desired savings equals desired investment (Sd = Id ), Top right: a FE - IS - LM diagram, Bottom left: a money market diagram, Bottom right: An AD - AS diagram, locating this initial equilibrium point as point A. BE SURE to LABEL all diagrams completely (10 points for each correctly drawn and labeled diagram...each diagram will have three different equilibriums points A, B, and C) SCENARIO #1 - AN LM SHOCK! 5 S1 a) (4 points) The Fed decides to conduct open market sales equal to 50. Assume that banks continue to hold zero excess reserves and the money multiplier is 0.8. Name two other ways the Federal Reserve could change the nominal money supply this way. S1 b) (6 points) What is the new, short run (fixed price level) expression for the LM curve? Please show all work. 6 LM Equation S1 c) (4 points) What is the short run, Keynesian (fixed price) level of equilibrium output and real interest rate? Please show all work. Y= r= Please label these new short run conditions to your four diagrams as point B. Be sure to label diagrams completely with the inclusion of all the relevant shift variables like we did numerous times in the lesson. S1 d) (4 points) Find the new price level associated with the long run general equilibrium. 7 P= Please label these long run conditions to your four diagrams as point C. Be sure to label diagrams completely with the inclusion of all the relevant shift variables like we did numerous times in the lesson. S1 e) (4 points) Let us focus on the movement from point A to B (the short -run) in your money market diagram. Explain why (and in what direction) the real interest rate had to change to 'clear' the money market. Be as specific as possible as we talked about this a great deal in our video lectures! 8