1. Consider two economies, A and B, shown below by the figures A and B, respectively. In these figures, Q refers to real GDP (output), P to the general price level and D to the Demand curve for output. The vertical or the horizontal line is the supply curve for output. (a) Suppose the initial level of demand is Dy in both economies. What are the equilibrium levels of price and quantity i) in economy A, ii) in economy B at this level of demand? (b) What will be the equilibrium levels of price and quantity in the two economies if there is a demand shock that unexpectedly increases demand from D2 to D;? (c) If you find the new price and quantity combinations in the two economies to be different, i) is the price level fixed or flexible in economy A? ii) is it fixed or flexible in economy B? Figure A Figure B Price Price P3 P. D3 D3 D z D2 -D1 Q1 Q, Q2 Q3 Quantity Quantity