Question: 3 . a ) In the new classical model, use the AD - AS and labour market graphs to analyze and discuss the short -

3 .

)

In the new classical model, use the AD

-

AS and labour market graphs to analyze and discuss the short

-

run effects of an anticipated contractionary fiscal policy on real output, employment, the price level, money wage and the real wage.

) (

Note: This part is independent of part a

)

Suppose that an economy is at the natural rate of unemployment, but policy

-

makers are concerned that the rate of inflation is too high. In the new classical view, if the Central Bank wants to achieve a painless disinflation, would it want greater or less transparency in its monetary policy planning process, i

.

.,

would it want the public to know about its intention to achieve a disinflation through a contractionary monetary policy? Be sure to explain your assertions.

3 . a ) In the new classical model, use the AD -

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