This is the classical model and the monetary base is decreasing.

1. Consider the following model: Y = C[ ( 1 - t ) Y, r ] + I ( Y, r ) + G+NX(Y, r) u(T) B P = L( Y, T) (2) Y = AF(N, K) (3) W = AFN (N, K) (4) NS = h ( (1 - t )-p (5) (a) List the assumptions you plan on using to answer the following questions. Given these assumptions, classify all of the variables in the above model as either exogenous or endogenous. (b) Suppose the Federal reserve engages in a very restrictive monetary policy: i. Find mathematically the effect on all the endogenous variable in your model when the Fed engages in a selloff of a portion of its government security holdings. ii. Show graphically the effect on all the endogenous variables