PART B: Long Questions Long Question 1: (70 points) Consider the short run model of Chapters 1 1 and 12. The national income identity is given by Yt = Ct + + Gt + EXt - IMt (1) where Yt is real actual output, Ct is consumption, It is investment, Gt is government spending, EXt is exports, and IM, is imports (all in period t). Assume that the "demand" variables are given by: Ct / = ac (2) Gt/ . = ag (3) EXty = dex ( 4 ) IMty = aim (5) "/. = at - b(Re - F) (6) Where ac , ag , dex , dim , di , g and b are given positive parameters. Moreover, Yt represents potential output, Y, is short-run output, R, is the real interest rate, and r is the marginal product of capital or just the long run interest rate. %b) Assume that ac= 0.7, ag= 0.1, dex- 0.1, dim=0.1, a;= 0.2, b=1.25, F =0.1. Draw a graph with the IS and the MP curve in the long run. For the MP curve assume that the Fed just sets Rt equal to the MPK. Be sure to clearly label the points on the y-axis and x-axis where the curves cross. (10 points) + ckup on 43 2:418 MAR tv 16