1. Assume a country's economy is currently in recession. (a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. (i) Current real output, labeled Y1, and current price level, labeled PL1 (ii) Full employment output, labeled Yf (b) Identify one action the central bank can take to help the economy recover from the recession. (c) Draw a correctly labeled graph of the money market and show the impact of the central bank's action identified in part (b) on the nominal interest rate. (d) On your graph for part (a), show the effect of the central bank's action identified in part (b) on real output and the price level. (e) Assume there is an increase in business confidence due to the central bank's action. (i) What will happen to the demand for capital goods? (ii) Draw a correctly labeled graph of the loanable funds market and show the effect of the change identified in part (e)(i) on the real interest rate. (f) Given your answer to part (e), what is the effect on potential real output in the long run? Explain.

2. Gross domestic product (GDP), unemployment, inflation, and economic growth are key measures of a country's economic performance. The following statistics are from Pattiland in 2016; dollar values are measured in 2016 dollars.

Consumption $90 Population 50 Investment $65 Labor force 25 Exports $25 Employed 20 Imports $50 Government spending $50 GDP deflator (2016) 90 Taxes $20