1 ) Suppose that the economy of Winter fell has the following characteristics:

AD:                  

   Y=900 + M/P

SRAS:                  Y=Y + 20(P-PE)                and        Y=1000 and ū=0.05

• If Winter fell is in long run equilibrium at M=400 and P=PE, what is P?
• Suppose that the Lord Stark announces an increase in M to 450, but actually increases M to 500. If Roku's law holds in Winter fell, what are the short run values of Y, PE and u?
• Given the above, find the expectations augmented Phillips curve slope.  

2) Consider the open economy IS-LM model, where r differs across country.  

• Explain why saving does not have to equal investment in an open economy.
• Explain, and show graphically, the long run effect of a temporary positive supply shock in a small open economy.
• Explain, and show graphically, the short run impact that a large open economy's expansionary monetary policy has on its neighboring small open economy.