Suppose that the price level is fixed in the short run so that the economy doesn't reach general equilibrium immediately after a change in the economy. For each of the following changes, what are the short-run effects on the real interest rate and output? Assume that, when the economy is in disequilibrium, only the labor market is out of equilibrium; assume also that for a short period firms are willing to produce enough output to meet the aggregate demand for output. In each case draw and label the graphs.
(a) A decrease in the expected rate of inflation.
(b) An increase in consumer optimism that increases desired consumption at each level of income and the real interest rate.
(c) A temporary increase in government purchases.
(d) An increase in lump-sum taxes, with no change in government purchase (consider both the case in which Ricardian equivalence holds and the case it doesn't).
(e) A scientific breakthrough that increase the expected future MPK.