k$.$ On Figure $1,$ plot the new new AS curve. Indicate the new steady$-$state equilibrium with a dot and label $1975.$

$2.$ Let us consider the intertemporal budget constraint of a two$-$period lived government: $$100+\frac{\text{\$}100}{1+0\mathrm{.}05}=T_1+\frac{T_2}{1+0\mathrm{.}05}$ where $i=0\mathrm{.}05$ or $5$ percent.

where $G_1=G_2=$$$100$ is government spending and $T$ is taxes and there is no intitial debt.

a$.$ Suppose that the government decides to run a balanced$-$budget in period $1.$ What would $T_1$ be$?$ As a result, what would $T_2$ be$?$

b$.$ Suppose instead that the government decides to cut taxes in period $1$ to $$75,$ while keeping government spending in period $1$ equal to $$100.$ Would the government have to issue or buy debt in period $1?$

c$.$ As a result of part b$,$ the government would need to cut or raise taxes in period $2?$ Solve for the amount.

$$

d$.$ According to the Keynesian view of debt, households do not antipicate the events of part c$.$ In response, what would they do with their $$25$ tax cut in period $1?$ Spend and$/$or save it$.$

$$

e$.$ According to the Ricardian view of debt, households do antipicate the events of part c$.$ In response, what would they do with their $$25$ tax cut in period $1?$ Spend and$/$or save it$.$

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$3.$ Let us consider two monetary policy rules and what they predict on the stance of U$.$S$.$ monetary policy.

a$.$ The U$.$S$.$ nominal policy interest rate is the effective federal funds rate. Write down the current effective federal funds rate.

b$.$ Let $\frac{?}{\text{b}\text{a}\text{r}}(r)=2\%\frac{,}{b}ar(m)=\frac{1}{2}$ and $=2\%.$ Write down the monetary policy rule $(13\mathrm{.}5)$ with these parameter values.

$$

c$.$ The inflation rate $$ is $2\mathrm{.}7\%.$ The monetary policy rule in part b prescribes an effective federal funds rate of

$$

b$.$ Let $\frac{?}{\text{b}\text{a}\text{r}}(r)=2\%\frac{,}{b}ar(m)=\frac{1}{2}$ and $=2\%.$ Write down the Taylor policy rule presented in class with these parameter values.