1.3 Use the figure below to answer the following questions.

a The economy is at point A when there is a oneshot demand-induced inflation. Assuming no other changes in the economy, at what point will the economy settle (assuming the economy is self-regulating)?
b The economy is at point A when it is faced with two adverse supply-side shocks. The Fed tries to counter these shocks by increasing aggregate demand.What path will the economy follow?

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Price Level F H D LRAS SRAS3 SRAS2 SRAS, B AD3 E AD AD Real GDP QN