1. Consider an economy that is currently at full employment (at potential GDP). Illustrate this economy in an AD-AS model. Suppose that there is increased security about jobs and future income. a. Use your graph to show and explain what will happen to the price level, GDP and unemployment according to the Keynesian model. b. Use your graph to show and explain what will happen to the price level, GDP and unemployment according to the Neoclassical model. 2. If new government regulations require firms to use a cleaner technology that is also less efficient than what they previously used, what would the effect be on output, the price level, and employment? Explain and illustrate with an AD/AS diagram. 3. An economy is described by the following set of equations: C = 1000 + 0.9(Y-T) I = 2000 G = 1500 Exports = 1000 Imports = 1200 T = 1500 Potential GDP= 31,000 a. What is the short-run Equilibrium? b. Illustrate this economy in a Keynesian Cross Diagram. C. Is this economy experiencing a recessionary expenditures gap or an inflationary expenditures gap? What is the size of the gap? d. By how much would aggregate spending have to change in order to eliminate the output gap? Explain