1) Use the LOE model in the SR to answer the questions below. Suppose the U.S. economy started from an equilibrium point, in February 2020. a. Show how the corona virus shock at rst affected the economy, starting in March. Use economic reasoning and graphs. That is, show how the lockdown affected consumption, sales, employment, production, real interest rates, and prices in the short run. In the IS-LM model, which curve shifted and to which direction? Show the initial equilibrium point and the new equilibrium point. b. Now, consider that the U.S. Central Bank (Federal Reserve Board) quickly decided to implement monetary policy to help the economy, starting already in March (short inside lag). Which policy or policies did the Central Bank pursue? Which open market operation? And which credit policy? What is the effect of this policy on real interest rate? In the IS-LM model, which curve shifted and to which direction? Show the change redrawing the diagram from a) c. Now, consider that the U.S. government (President and Congress) decided as quickly as possible to implement scal policy to help the economy, starting in April (longer inside lag). Which policy or policies did the U.S. government pursue? What is the effect of this policy on real interest rate? In the IS-LM model, which curve shifted and to which direction? Show the change redrawing the diagram from b) d. Which policy is more effective in the short run? Notice that the strength of the policies is an assumption that you can make. As long as you shift the IS and LM curves to the right direction, how far they go the direction is your call. Just notice that we know that now interest rates are very low, lower than before the shock and should stay low for at least one year. Try to answer and move your graphs so they are consistent to it. Now, you can see that depending on the strength of the policies the effect of the corona virus might last less time than without intervention