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5.Menu costs are, by definition the costs of changing prices.6.What does Keynesian model predict about monetary neutrality?7.In the Keynesian model, how does a temporary increase in government purchases affect the following? Your answers in each column should be relative to the original long-run equilibrium levels of each variable.
How is a temporary increase in government purchases likely to affect the composition of output in the long-run?8.According to the Keynesian IS-LM model, what is the effect of the following on output, the real interest rate, employment, and the price level of an economy? Distinguish between effects in the short-run and in the long-run. Your answers in each column should be relative to the original long-run equilibrium levels of each variable.9.Suppose that the Fed has a policy of increasing the money supply when it observes that the economy is in recession. However, suppose that about six months are needed for an increase in the money supply to affect aggregate demand, which is about the same amount of time needed for firms to review and reset their prices. What effects will the Fed’s policy have on output and price stability?