If Mexico lowers its inflation target from 3 percent to 2 percent, the initial response to this will be A) that the AS will shift left. B) that the AD will shift left. C) a rightward movement along the IS curve. D) the LM curve will shift down. E) that the AD will shift right.

Use the following figure to answer the next question. Price Level AS AD₂ AD₁ Y₁ Y₂ Real GDP Suppose the economy is currently at full employment with aggregate demand curve AD2. A further increase in consumption and investment spending will cause Multiple Choice Odemand-pull Inflation, and the new equilibrium output will be less than Y2. O cost-push inflation, and the new equilibrium output will be less than Y2. 0 O cost-push inflation, and the new equilibrium output will be more than Y2. demand-pull inflation, and the new equilibrium output will be more than Y2. MacBook Pro 66 27 & + ✓ 8 9 R T Y U ull 0 0 LL F G H J K

Consider the classical AS-AD model with misperceptions. Assume that the economy is initially at its general equilibrium. Now, suppose the central bank considers an increase in the nominal money supply that is not anticipated by households or firms. b. How does the misperception theory work? c. Which of the three markets discussed in class is first affected (labor, goods, or asset market)? Explain and show graphically how this market is affected by an unanticipated increase in the nominal money supply.

QUESTION 7 Consider the following Taylor rule i=0.02+0.5y+0.5 (n- 2% ) where y is the percentage difference between the actual output and its full-employment level, while is inflation over the last 12 months. The evolution of the economy is described by the following data: Full-emp't output Actual output Price level January, 2050 February, 2050 March, 2050 100.00 100.00 100.00 100.00 101.41 99.52 100.00 102.31 104.71 April, 2050 Мay, 2050 100.00 101.31 102.58 100.00 100.10 99.64 June, 2050 100.00 101.89 100.07 July, 2050 August, 2050 September, 2050 October, 2050 100.00 100.55 100.71 100.00 100.83 99.20 100.00 99.75 98.40 100.00 99.95 101.82 November, 2050 100.00 98.54 98.83 December, 2050 100.00 97.52 98.68 100.00 97.43 percent. January, 2051 98.10 According to the Taylor rune, in January 2051 the central bank must have set the interest rate at Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct…