1)Given an economy operating in a state of long-run equilibrium. This economy suddenly faces unstable security situation that led the government to announce and finalize a deal to buy new fighter planes and missiles.

a.Show the effect of this economic policy on the whole economy in words and graph using AD-AS model.

b.What should governments do to stabilize the economy using the tax fiscal policy instrument, indicate what should be done? Show the effect of your suggested policy in words and graph of the AD-AS model?