Consider an economy that is in equilibrium with output equal to \(Y^{*}\). There is then a significant reduction in the world's demand for this country's goods.

a. Illustrate the initial equilibrium in a diagram.

b. What kind of shock occurred-aggregate demand or aggregate supply? Show the effects of the shock in your diagram.

c. Explain the process by which the economy will adjust back toward \(Y^{*}\) in the long run. Show this in your diagram.

d. Explain why policymakers may want to use a fiscal expansion to restore output back to \(Y^{* *}\) rather than wait for the process you described in part (c). What role does downward wage stickiness play in the policymakers' thinking?