1. Draw the labor market equilibrium diagram and the saving-investment diagram. a. Consider an increase in future expected total factor productivity. Draw the changes that this type of shock implies for the graphs, and state implications for changes in employment, wages, consumption, investment, interest rate, and output. (Assume for simplicity that current labor supply does not respond to changes in the rate of interest.) b. Total factor productivity shocks tend to be positively correlated over time. Consider the case of an increase in both current and expected future total factor productivity. Repeat part a. (Again, assume that current labor supply does not respond to changes in the rate of interest.)

4. A large decline in government purchases: Suppose there is a large temporary decline in government purchases in the economy, financed by an unspecified decline in future lump sum taxes. (a) Analyze the effect of the shock in the labor market diagram of a standard DSGE model (with no sticky prices or wages). What is the effect on the real wage and employment in the short run? (b) How would your answer change if there are sticky prices? (c) Discuss how your answer relates to the impulse response functions shown in Figure 15.12. (Hint: That figure is for an increase in government pur- chases, so you need to switch the sign of the effects in that figure.) FIGURE 15.12 The Dynamic Effects of a Shock to Government Purchases Percent change Percent change 1 GDP 0.5 0.5- 0 Consumption -0.5 15 20 10 Quarters after the shock 0 -0.5- 5 Percent change 0.7 0.6 0.5- 0.4- 0.3- 0.2 0.1 0 0 5 Hours worked 20 10 15 Quarters after the shock 5 Percent change 0.4 0.3- 0.2 0.1 0 0 5 10 15 20 Quarters after…

3. Is the above model consistent with the policy ineffectiveness proposition? How does the policy implication of the model differ from that of the traditional static AD-AS model with exogenous expectations or adaptive expectations? Explain.

12.In the RBC model, assume you observe an initial economic growth rate of 10%, and an initialinflation rate of 2%. Further assume that the equilibrium unemployment rate in the economy is 2.3%.Following a permanent, positive aggregate demand shock, which of the following are potential long-rununemployment rates in this economy? a.12% b.6% c.8.3% d.2.3% e.all of the above

5. Consider the following changes in the sticky-wage model. a. Suppose labor contracts are fully indexed for inflation so that as inflation changes. That is, the nominal wage is to be adjusted to fully compensate for changes in the consumer price index. How does full indexation alter the AS curve in this model? b. Suppose that now indexation is only partial. That is, for every increase in the CPI, the nominal wage rises, but by a smaller percentage. How does partial indexation alter the AS curve in this model?

4. Consider the real intertemporal model with investment. A war breaks out that is widely expected to last only one year. a) Determine the shock in the economy to model a short war. b) Determine the new equilibrium for aggregate output, employment, wage, and interest rate and carefully explain your results. Show this in your diagram.

Expectations often play cruel jokes on the market participants. Assume that everyone (buyers and sellers) expect future gold prices to increase. Use the four-step process of finding equilibrium, please be sure to describe what (if anything) happens to the current demand and/or supply of gold, which way(s) do the corresponding curve(s) shift, and what happens as a result to the equilibrium price and quantity of gold exchanged.

Help me with second question please