Question: Problem 3. Shocks in IS-LM-FE Framework, Short- and Long-run Equilibria Use the IS-LM-FE model to determine the effects of each of the following on the

the IS-LM-FE model to determine the effects of each of the following

on the general equilibrium values of the real wage, employment, output, real

interest rate, consumption, investment, and price level. Indicate with A, B, and

Problem 3. Shocks in IS-LM-FE Framework, Short- and Long-run Equilibria Use the IS-LM-FE model to determine the effects of each of the following on the general equilibrium values of the real wage, employment, output, real interest rate, consumption, investment, and price level. Indicate with A, B, and C the equilibrium before the shock, short-run equilibrium, and long-run equilibrium respectively. Assume that A is at full employment. a) A reduction in the effective tax rate on capital that increases desired investment. b) The expected rate of inflation rises. ) Aninflux of working-age immigrants.

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