a.) Graphically derive the 3 equation model I.e. IS- curve, WS-PS curve, and MR curve. State the sequence of the various steps of interaction and briefly explain the intuition behind each of these curves.

Assume that The UK government addresses regional inequality by redirecting spending from the London area to the poorer, less urbanised area. As a consequence, there is a Permanent increase in the marginal propensity to consume and, due to a reduction in agglomeration and cluster effects, a permanent reduction in productivity. Overall government spending and tax revenues are assumed to remain unchanged.

b.) Using new diagrams, explain how this will affect the economy by giving a period-by-period description.