Question: show work please Problem 1. (30 points) Consider the Sticky price model that we discussed during the lecture, and suppose that The firm with flexible

show work please

show work please Problem 1. (30 points) Consider the Sticky price model

Problem 1. (30 points) Consider the Sticky price model that we discussed during the lecture, and suppose that The firm with flexible prices follow p = P + a(Y - Y), The firm with sticky prices follow the same rule but take the expectation of the RHS, i.e., p = E[P + a(Y - Y)]. Further, assume that a = 2, Y = 100, EP = 60, s = 0.25 a) Derive the SRAS curve (i.e., obtain an equation for the SRAS). b) Draw a figure show the SRAS and LRAS curves on the figure. c) Derive the SRAS curve when EP increases to EP=120. d) Derive the SRAS curve when EP is still the same as in part a (i.e., EP=60), But "s" has increased to s=0.5

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