Afinancial crisis: suppose the economy starts with gdp at potential, the real interest rate and the marginal product of capital both equal to 3%, and a stable inflation rate of 2%. a mild financial crisis hits, that raises the risk premium from zero to 2%.

a. analyze the effect of this shock in an is/mp diagram.
b. what policy response would you recommend to the federal reserve? what would be the effect of this policy response on the economy?
c. how would your answer to part b) change if the financial crisis were very severe, raising the risk premium to 6%?
d. what other policy responses might be considered in this case?

He moto hotel opened for business on may 1, 2017. here is its trial balance before adjustment on may 31. moto hotel trial balance may 31, 2017 debit credit cash $ 2,283 supplies 2,600 prepaid insurance 1,800 land 14,783 buildings 72,400 equipment 16,800 accounts payable $ 4,483 unearned rent revenue 3,300 mortgage payable 38,400 common stock 59,783 rent revenue 9,000 salaries and wages expense 3,000 utilities expense 800 advertising expense 500 $114,966 $114,966 other data: 1. insurance expires at the rate of $360 per month. 2. a count of supplies shows $1,050 of unused supplies on may 31. 3. (a) annual depreciation is $2,760 on the building. (b) annual depreciation is $2,160 on equipment. 4. the mortgage interest rate is 5%. (the mortgage was taken out on may 1.) 5. unearned rent of $2,580 has been earned. 6. salaries of $810 are accrued and unpaid at may 31