Answer the questions. 1. A country's government is putting together a twenty-year plan to try and increase labor productivity. Provide two policy recommendations that could increase labor productivity in the long run. (2 points) 2. Assume the government has successfully increased labor productivity. Show how this increase impacts a correctly labeled Production Possibilities Curve that produces the goods of A and B. (2 points) 3. Historians believe that the Production Possibilities Curve you drew in Question #2 changed for another reason other than increased labor productivity. Provide one other reason why the Production Possibilities Curve could change. (1 point)

Assume that the Australian economy is in short-run equilibrium with an inflation rate of 2 percent and an unemployment rate of 6 percent. 1. Using a correctly labeled graph with a short-run Phillips curve and the relevant numbers from above, show the Australian economy as point A. (2 points)

2. If the expected inflation rate is 1%, what is the real interest rate? (1 point)

3. The Australian public is concerned that the unemployment rate is too high. Therefore, the central bank followed a policy that impacted the money market as shown in the graph below. Will the central bank's policy reduce unemployment? Explain. (2 points)