(LO 1,2,3) Suppose that the economy of Basel, as shown below, was in equilibrium in 2013. (Calculate answers, where necessary, to one decimal place.)

In 2014, Basel’s government uses expansionary policy and is able to increase AD by $400.

a) Draw AD2 on Figure 12.16.

b) Suppose that the natural rate of unemployment in Basel is 6 percent and cyclical unemployment TABLE 12.5B Interest Rate Exchange Rate Investment Spending 1 0.95 100 2 0.96 90 3 0.97 80 4 0.98 70 5 0.99 60 6 1.00 50 TABLE 12.5C Exchange Rate Net Exports 0.95 +10 0.96 +6 0.97 +2 0.98 +2 0.99 -6 1.00 -10