An economic model consists of a defined set of variables and the relationships that exist among the variables. The purpose of the model is to explain some aspect of the observed economy. Assume that the standard symbols used to identify your variables are understood as well as the meaning of the relationships to which you make reference; i.e., were you to write I = I(r), it will be understood without need for further verbal explanation.
Assume that the economy is hit by a (non-permanent) productivity/supply shock(e.g., another oil crisis) as well as a decline in optimism affecting both consumption and investment. Verbally and graphically explain the implications of the indicated shocks. In your discussion, contrast and compare the possible responses to the situation. If you were King/Queen, indicate the policy responses that you would decree.
You are not allowed to consult any person or use any source, e.g., the internet, other than those specifically indicated.
Five to eight pages.
Times New Roman, Double Space.