1, Consider the aggregate demand aggregate supply (AD-AS) model. Assume the economy is initially at its long-run equilibrium. (related slides: 40-48 in chapter 9) a. Produce a new graph, draw the aggregated demand curve, short-run aggregate supply curve, and the long-run aggregate supply curve and label the curves. Label both the horizonal and vertical axes clearly. Label the long-run equilibrium as A and its corresponding output level as Y,, Now assume a positive supply shock hits the economy. In the graph, show the short-run effects of this positive supply shock. Label the new short-run equilibrium as B and its corresponding output as Y2. In the same graph, show how the economy adjusts after the shock hits. After the economy fully adjusts, label the new short-run equilibrium as C and its corresponding output as Y3. Repeat the last question but assume a negative demand shock. Consider the aggregate expenditure and output that we learned in chapter 10. (related slides: 7 13 in chapter 10) a. d. What are the four components of aggregate expenditure in the economy? Write aggregate expenditure as a function of output. On a graph, plot the aggregate expenditure function, together with a 4S-degree line. Label the horizontal and vertical axes. In the graph, find the equilibrium in the goods market and label it as A. Also label the corresponding output as Y1. Now assume the government increases government purchase. In the same graph, show how the increase in government purchase affects the good market. Label the new equilibrium as B and its corresponding output as Y2. How can you identify the multiplier effect from the change of government purchase from the graph? Consider the IS-MP model, assume the economy is initially at its potential GDP. (related slides: 39-50 in chapter 10) 3. Draw the IS and MP curve and put output gap on the horizontal axis. Label the vertical axis. Label the initial equilibrium as A and its corresponding output gap as I70. Now assume a positive demand shock hits the economy. Show the effects of this positive demand shock. Label the new equilibrium as B and its corresponding output gap as V1. If the Fed wants to bring the economy hack to its potential GDP, which monetary policy should the Fed conduct? Contractionary or expansionary monetary policy? In the same graph, show the effects of the monetary policy you propose in the last part. Label the new equilibrium as C and its corresponding output gap as I72. 5. Consider the IS-MP model combined with the Phillips curve, assume the economy is initially at its potential GDP. (related slides: 29-34 in Chapter 11) a. Produce two graphs, one at the top and the other at the bottom. Draw the IS curve and MP curves in the upper graph. Label the equilibrium as A and its corresponding output gap as Y'o. b. Draw the Phillips curve in the lower graph, Label the same equilibrium point A and its corresponding output gap. c. Assume a negative demand shock hits the economy. Show the effects of this negative demand shock in the upper graph. Label the new eqUilibrium as B and its corresponding output gap as 171. d. Show the effects of the same negative demand shock in part c in the lower graph. Label the same new equilibrium as B. e, Now assume the Fed conducts expansionary monetary policy to bring the economy back to its potential GDP. In the upper graph, show the effect ofthe expansionary monetary policy. Label the new equilibrium as C, and its corresponding output gap as . f. In the lower graph, show the effect of the expansionary monetary policy. Label the new equilibrium as C. 6. Produce the same graph as indicated in part la) and (b) in the last question. a. Show the effects of a negative supply shock in the upper and lower graphs