1. Assume the United States economy is experiencing an inflationary period caused by an increase in government spending.

(a) On the short run Phillips curve, would the economy, in its current state, be characterized by a point to the right of, left of, or on the long run Phillips curve?

(b) Draw a Phillips curve to illustrate your answer in part

(a) and place point A on the graph to indicate the current state of the economy.

(c) Identify a fiscal policy that would aid in closing the inflationary gap.

(d) On the graph you drew in part (b), illustrate the implementation of fiscal policy that you indicated in part

(c) on the Phillips curve by placing point B on the curve.

(e) Assume the price of oil increased significantly. Describe what change would take place on the Phillips curve due to this supply shock.