This is a Macroeconomics question.

2 Monetary stabilization 85 the forward guidance (50 points, 10 points each subpoint) Consider the Sidrauski model from class, and suppose that the economy is at its steady state. No math required for this exercise! Help yourself with the Sidrauski diagram (Figure 1 in lecture note and see section 4. Experiments for example on how to sketch the dynamic). (a) (b) (C) (d) The government is unhappy with the amount of ination it observes and decides to suddenly and unexpectedly reduce the growth rate of the per capita nominal money supply from qr > 0 to zero. In a Sidrauski diagram, show what happens to real money balances as a result of the stabilization. Explain in words. [Hint see gure 2 in lecture note 9. It contains the Sidraushi diagram for a permanent unanticipated increase in '7. In this exercise, you need to plot exactly the same diagram but for a permanent unanticipated decrease in 7.] Draw the equilibrium time paths of real money per capita, nominal money per capita, and the price level before and after the stabilization. Be sure to draw these in natural logarithms and label the slopes of any straight lines. Explain the economic intuition behind the response of the price level. [Hint see gure 3 in lecture note 9. It contains the time paths for a permanent unanticipated increase in "y. In this exercise, you need to plot exactly the same diagram but for a permanent unanticipated decrease in 7.] Now suppose that people learn about the stabilization ahead of time. In a Sidrauski diagram, show what happens to real money balances after people learn about the stabilization. Explain in words. [Hint- see gure 4 in lecture note 9. It contains the Sidrauski diagram for a permanent anticipated increase in 7. In this exercise, you need to ptot emacttg the same diagram but for a permanent anticipated decrease in 7.] Draw the equilibrium time paths of real money per capita, nominal money per capita, and the price level before and after people learn about the stabilization and before and after the stabilization actually occurs. Be sure to draw these in natural logarithms and label the slopes of any straight lines. Explain the economic intuition behind the response of the price level. [Hintr see gure 5 in tectarc note .9. It contains the time paths for a permanent anticipated increase in 7. In this chemise, you need to plot exactly the same diagram bat for a permanent anticipated decrease in 7.] (e) Two stylized facts about the hyperinations we considered in class are that (i) the price level does not appear to jump down at the time of the stabilization in money growth, and (ii) real money balances actually begin to increase before the stabilization takes place. Based on your answers to parts (a) through (d), can the Sidrauski model explain these facts? Explain