3. Productivity and AS/AD (15 points). The economy is initially at its long run equilibrium, as represented in the figure below. P AS AD a. As part of its clean air initiative, the Congress has enacted legislation that requires firms to submit lengthy reports about the company's impact on the environment. This sweeping regulation has made it more difficult for firms to produce: some of a firm's capital and labor that was producing output is now producing reports. Show the effect of this regulation on the figure above. (Assume that AS' and AS shift by the same amount horizontally.) Label (8 points) the short-run equilibrium (18, PP). Is this proposed legislation inflationary? Deflationary? b. What happens to output in response to this legislation? What is the implied relationship between output and prices? (7 points)