1. Imagine an economy is at full employment, or a long-run macroeconomic equilibrium. The GDP of the country's major trading partner increases leading to an increase in exports, all else constant. Answer each of these questions in one sentence.

a. What type of output gap will occur?

b. What situation occurs in the labour market?

c. At this point, has there been inflation in the economy?

d. How does the self-correcting mechanism work in this situation?

e. Has there been inflation now? Explain