Answer the following:

1.What action might the government take if the economy is in the situation depicted above? What action might the Federal Reserve take if the economy was in the situation depicted above? Depict the action from the federal reserve in the liquidity preference graph. 2.An economy is in longrun macroeconomic equilibrium with an unemployment rate of 5% when the government passes a law requiring the central bank to use monetary policy to lower the unemployment rate to 3% and keep it there. How could the central bank achieve this goal in the short run? What would happen in the long run? Illustrate with the AD/AS diagram