Using the IS-MP diagram, explain what happens to the economy if there is a tempo-rary consumption boom that lasts for one period.1a) Initially, suppose the central bank keeps the nominal interest rate unchanged.b) Suppose you are appointed Governor of the Reserve Bank. What monetarypolicy action would you take in this case and why? Refer to the IS-MP diagram

Consider a different version of the Taylor rule, where monetary policy depends onlyon short-run output: −  =  ea) Draw an IS-MP diagram, but instead of the usual MP curve, plot the simplifiedversion of the Taylor rule. You might label this curve MPR for “monetarypolicy rule”.b) Now consider the effect of a positive aggregate demand shock in the IS-MPRdiagram. (An example might be a fiscal stimulus.) Compare and contrast theeffect of this shock on the economy in the standard IS-MP diagram versus theIS-MPR diagram. Why is the result different?c) Economists refer to the result in the IS-MPR diagram as “crowding out”. Whatgets crowded out and why?

Discuss the comparative effect of monetary and fiscal policy under the IS-LM framework with diagrams

In 2008, the Federal Reserve committed funds to stabilize the banking system and lower the risk premium in the economy. In the IS-MP framework, the impact of this Federal Reserve policy is that the (MP curve shifts down, MP curve shifts up, IS curve shifts right, IS curve shifts left)

In this assessment task, you must utilise the IS-LM and AD-AS models to illustrate short-run economic fluctuations and the movement to long-run equilibrium. Assume a large open economy with a floating exchange rate. Ensure your graphs align with the appropriate IS-LM (upwards-sloping LM curve) and AD-AS modelling frameworks. Always draw the IS-LM diagram above the AD-AS diagram and show the connection between both graphs. You must complete this part of the assessment task for your allocated policy mix, with the fiscal and monetary policy mix allocation 我分配到的财政和货币政策组合是 a) Negative demand shock b) No fiscal or monetary policy c) Adjustment of inflation expectations (if needed） Important hints: • Use different colors for a) b) c). • First, explain what happens to GDP, interest rates, unemployment, and inflation as a result of the shock in a) . Show it in the diagrams. • Second, explain if the policy in b) makes sense and how it affects GDP, interest rates, unemployment, and inflation. Show it in the diagrams. For students with “No fiscal or monetary policy”: explain which economic mechanism will bring the economy back to potential GDP over time. • Third, explain if the inflation rate in your graph is consistent with inflation expectations. Show how your graph is changing when inflation expectations adjust to the situation in your graph.

QUESTION 2Assume the graph below indicates the long-run impact on the loanable funds market of a closed economy. Select all scenarios for which the above graph correctly illustrates the long-run effect according to the classical model.Note: This is a multiple-answer question; thus, more than one option may be correct.a.An increase in government expenditure.b.A decrease in transfer payments.c.A decrease in taxes.d.A decrease in government expenditure.