THIS IS THE GENERAL EQUILIBRIUM PROBLEM THAT I PROMISED. YOU FIRST SOLVE FOR THE INITIAL EQUILIBRIUM AS POINT A. WE CONSIDER TWO DIFFERENT AND SEPARATE SHOCKS (I CALL THEM SCENARIOS). THE FIRST SHOCK IS TO THE IS CURVE, THE SECOND SHOCK IS A 'LM' SHOCK. AGAIN, WE CONSIDER THESE SHOCKS SEPARATELY SO THAT AFTER YOU COMPLETE SCENARIO 1 (THE IS SHOCK), WE GO BACK TO THE ORIGINAL CONDITIONS AND CONSIDER THE SECOND SCENARIO WHICH IS THE 'LM' SHOCK. Consider the following model of the economy Production function: Y = A.K.N - N:/2 Marginal product of labor: MPN = A.K - N. where the initial values of A = 6 and K = 10. The initial labor supply curve is given as: N: = 40 + 4w Initial conditions in the goods market C: = 80 + .50(Y-T) - 500r L = 800 - 500r G = 100 T = 100 M:/P = 158 + 0.5Y- 1000(r + n.) Nominal Money supply M = 4000 Expected inflation is equal to 2% (n = 0.02) 1 a) (6 points) Solve for the labor market clearing real wage (w*), the profit maximizing level of labor input (N*), and the full employment level of output (Y*). Please show work. Draw two diagrams vertically with the labor market on the bottom graph and the production function on the top graph. Be sure to label everything including this initial equilibrium point as point A. (10 points for completely labeled and correct diagrams) b) (4 points) Derive an expression for the IS curve (r in terms of Y). Please show all work c) (3 points) Find the real interest rate that clears the goods market. Please show all work