4. Interest rates and AS/AD (20 points). The economy is initially at its long run equilibrium, as represented in the figure below. P AS AS AD Y. a. The 2008 recession in Australia was mild compared to the recession in the United States. After three quarters of falling GDP, the Australian economy recovered, and began growing rapidly. Beginning in late 2009, the Reserve Bank of Australia began increasing its target interest rate. The higher interest rate affects the purchase of interest-sensitive goods: cars, homes, production machinery, and aircraft, to name a few. Show the impact of higher inter- est rates in the figure above. Label the short run equilibrium (1#, p"). Is this inflationary? Disinflationary? (8 points) b. What happens to output? What is the implied relationship between output and prices? (7 points) c. Why would the Reserve Bank of Australia want to raise interest rates? (5 points) 5. The inflation-output tradeoff (5 points). Generalize your results from questions 4 and 5. When is the relationship between the price level and output positive? When is it negative