2. Use the following AS-AD model. (a) Label the each line, both axes, and the equilibrium price level (P1) and potential ( YP) (b) Imagine that consumer confidence declines sharply. Think about which curve this will affect and how. Draw a new curve in black representing this shift and label it with a 2 (that is, AS2, AD2, etc.) Also label the new equilibrium values. Is there an inflationary gap or a recessionary gap? (c) Imagine that the government decides to intervene. Which curve will shift and how? Draw the new curve in blue, and label it with an I. Label the new equilibrium price level and output. What kind of policy could accomplish this? Give a general example. (d) Now imagine that instead of intervening, the government decides to allow the econ- omy to return to equilibrium on its own. In this case, which curve will shift and how? Draw the new curve in red and label it with N. Label the new equilibrium price level and output. Page 3