1. Let us assume that the country of Utopia is currently facing stagation. Two prominent economists debate the issue. - Economist A says the Central Bank of Utopia (CBU) should not do anything as trying to take care of one objective will worsen the other. - Economist B says the CBU needs to have an expansionary policy because a failure to take care of recession will cause cyclical unemployment to turn into structural unemployment. Analyze each of these arguments separately using the AS-AD framework. Carefully draw the relevant gures, label them correctly and explain your answer logically and analytically. 2. Consider the following gure on historical unemployment rates in the US since 2005. Figure 1: Unemployment Rate {96) in the US: 2005-2013 h Lehman AIG Collase Se '08 Average Unemployment Rate EDGE-200?: 5% Notes: Quarterly, Seasonally Adjusted Figures. . ARRA - American Recovery and Reinvestment Act [ARRA]: This was an expansionary scal and monetary stimulus package to boost the US economy after the Global Financial Crisis. Source: Compiled from Federal Reserve Economic Data and Bureau of Labor Statistics. - The US Government/Fed has undertaken highly expansionary monetary and fiscal policies since the 2008 financial crisis. Referring to Figure1 above, if you are a Keynesian economist, you will argue that the reduction in unemployment rates from about a peak of 10 percent in Oct-2009 to just above 8 percent in Ian2012 has been a result of the stimulus packages. How would you show this in an ASAD framework? - If you are a Classical economist, you would look at the same data and argue that the reduction in the unemployment rate had nothing to do with stabilization policies and instead the economic recovery was because of an automatic mechanism. How will you show this in an ASAD framework? Draw separate diagrams for both cases and explain your answer. - Bonus point: Can you use your understanding of the types of unemployment to explain the reduction in unemployment that you can observe in the data provided in Figure 1