The recent invasion of Ukraine created an increase in energy prices in Europe. This increase in energy crisis can be seen as an increase in firm's markup (m) over prices. a) Using the IS-LM-PC model, show graphically the effect of an increase in markups in the Short-run. [10 points] Make sure you: Perform a graphical analysis using five graphs: Goods market, Money market, Labour market, IS-LM, and the Phillips curve graph. Make sure to properly label each of those graphs. Explain all steps necessary for your solution. Also, explain in words and using economic intuition all the steps you take. Analyze the effect of the shock on the following variables (increase, decrease, no change): Y, investment (I), consumption (C), government spending (G), nominal interest rate (i), real interest rate (r), inflation, unemployment (u), money supply and money demand. Solution: As given above, markups increase. This is the initial exogenous change. The increase in markups affects the labor market shifting down the PS curve. The result is an increase in the natural rate of unemployment and a decrease in real wages. The is no change in prices (either wages or P) because in the short-run it is