1.Assume the economy is experiencing unemployment that is below the natural rate.

a.Show the current condition of the economy using a correctly labeled AD/AS model

b.If the government reduced the taxes on the return to savings; show the impact on the real interest rate using a correctly labeled graph.

c.Explain how the results of part b impact investment

d.i. Consider your answer in part(c ) about the impact on investment:what effect would this have on AD and Price Level?Explain, do not show.

e.Consider the economic condition described in 1a. - now instead of fiscal policy, identify and explain one tool of monetary policy that would be appropriate (include what to do with that tool) and explain how it helps the economy.