Consider the classical IS-LM/AS-AD model. A) On the graph below, use the IS-LM model to show how the RBC model explains the stagflation phenomenon of the 1970s (assume that the shock to productivity is temporary). What happens to output, the price level, the real interest rate, and employment? (10pts)

Please answer A,B,C,and D

2) Consider the classical IS-LM/AS-AD model. A) On the graph below, use the IS-LM model to show how the RBC model explains the stagflation phenomenon of the 1970s (assume that the shock to productivity is temporary). What happens to output, the price level, the real interest rate, and employment? ( 10pts) B) On the graph below, use the classical IS-LM model to show what will happen in the short-run when there is a permanent rise in the price of oil. [5pts) C) Now, assume the Fed tries to use expansionary monetary policy to stimulate the economy. On the graph below use the classical IS-LM model to show the economy will respond to this policy. (Hint: Redraw your answer to part A, then show the new monetary policy, and the adjustment to general equilibrium. Remember that prices adjust quickly in the classical model). ( 10 pts) D) Was this the correct response by the Fed? Explain. (5pts) 2) Consider the classical IS-LM/AS-AD model. A) On the graph below, use the IS-LM model to show how the RBC model explains the stagflation phenomenon of the 1970s (assume that the shock to productivity is temporary). What happens to output, the price level, the real interest rate, and employment? ( 10pts) B) On the graph below, use the classical IS-LM model to show what will happen in the short-run when there is a permanent rise in the price of oil. [5pts) C) Now, assume the Fed tries to use expansionary monetary policy to stimulate the economy. On the graph below use the classical IS-LM model to show the economy will respond to this policy. (Hint: Redraw your answer to part A, then show the new monetary policy, and the adjustment to general equilibrium. Remember that prices adjust quickly in the classical model). ( 10 pts) D) Was this the correct response by the Fed? Explain. (5pts)