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1. Assume that the full-employment level of GDP for the U.S. economy is $14 trillion but that the economy is currently operating at $13 trillion.

1. Assume that the full-employment level of GDP for the U.S. economy is $14 trillion but that the economy is currently operating at $13 trillion.

A. Draw a correctly labeled graph that shows this situation.

B. Explain why it is expected that the economy can reach long-run equilibrium at the full-employment level and describe the changes to price level and unemployment that result from this process.

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