Answer Happy

7. Answer all parts (a)-(c) of this question. (a) [10 marks] Explain the main features of the Policy Ineffectiveness Proposition. Use a diagram to illustrate your answer. Why do think the Policy Ineffectiveness Proposition may fail to hold in reality? (b) [8 marks] Using diagrams to illustrate your answer explain the main effects of a negative technological shock in Real Business Cycle Theory. In your answer make sure to explain the role played by the intertemporal substitution of labour supply. (c) [7 marks] Explain the Lucas Critique and its main implications in terms of conducting economic policies.