4. Use short-run and long-run Phillips curves to answer this question. (You don't need to draw the graph, but you need to describe it if there is a movement along the curve or a shift of the curve. Make sure you mention the direction of the change.)

(a) (4 pts) Suppose the economy is in a long-run equilibrium at the beginning. Now a wave of optimism increases aggregate demand. Describe what will happen in the graph. If the central bank undertakes monetary policy, can it return the economy to its original long-run equilibrium?

(b) (6 pts) Suppose the economy is still in long-run equilibrium. Now the price of oil rises. Describe what will happen in the graph. If the central bank undertakes expansionary monetary policy, what happens in the graph? If the central bank undertakes contractionary monetary policy, what happens in the graph? Make sure you mention how the unemployment rate and inflation rate change in each condition.