Suppose there is an increase in ft. (a) Graphically depict this change in ft. (b) What is optimal monetary policy in this case? Show this graphically. How do all the endogenous variables change relative to Part 1a? (c) Suppose there is no change in monetary policy. How can the government change Gt to achieve the same level of output as in Part 1b? adjust such that there is no change in output? Graphically depict this. Hos do all of the other endogenous variables change? (d) Does the fiscal policy in Part 1c implement the Pareto optimal allocations? Explain.
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