Consider the Four Quadrant Model (4QM) in Figure 1 1. (10 points) Draw the relationships between the rent, price, construction, and stock in Figure 1 according to the Four Quadrant Model. 2. (40 points) Explain the relationship between the variables in each of the four quadrants: (i) What does the relationship in the quadrant stand for? (ii) How do variables depend on each other according to this relationship? (a) (10 points) Quadrant I (b) (10 points) Quadrant II (e) (10 points) Quadrant III (d) (10 points) Quadrant IV 3. Suppose the stock of space is S=20,000 square feet. Suppose that the depreciation rate is 20%. How much should construction be for the stock of space to stay in the long-run steady-state? Now consider an decrease in the depreciation rate to 7.5%. How much should construc- tion be for the stock of space to stay in the long-run steady-state? 4. (5 points) Will this decrease in the depreciation rate affect any of the relationships depicted in the quadrants? 1 IV Price E + ||| Figure 1: Four Quadrant Model Rent Construction 1 Stock of space 11