1. Assume a developed nation's economy is seeing a surge in AD. Use the AD/AS model to illustrate and describe the current position (i.e., what is happening to inflation and real GDP) and how fiscal and monetary policies might help bring the economy back to a long run equilibrium. Also explain why these policies might not achieve this goal.

2. Suppose an economy was in a long-run equilibrium but is now heating upall signs indicate it is entering a boom period. Suppose the fiscal policymakers misinterpret the data and feel they must help the economy; they decide to make 25% tax cuts. Use the AD/AS model to describe the effect this policy will have on inflation and real GDP in the short run and the long run in the U.S.

3. Suppose a central bank has increased its nation's nominal money supply considerably for several years in a row but without any increase in inflation.Over that same time, suppose its economy has not grown. Given this information, explain why this monetary policy has not yielded any results.Use the AD/AS model to aid in your answer and assume the economy is in a long-run equilibrium as your starting point.A good approach would be to compare what is supposed to happen to AD when the central bank conducts expansionary monetary policy to this situation.