Assume that Canada's economy is currently operating at an equilibrium level below

full employment.

a)Draw a correctly labeled graph of aggregate demand and aggregate Supply and show each of the following.

i) Long-run Aggregate Supply

ii) Current equilibrium output and price level

b)What would be the natural (No government interventions) economic adjustment that this economy would experience in the long run? And explain why.

c)Now assume that a significant increase in the price of oil, a major input in production. Show on your graph in part (a) how this increase in prices will affect each of the following.

i) Long-run Supply.

ii) Short run Supply.

ii) Real output, price level, and unemployment.

d)Give 4 different ways that could be used by economic planner to achieve full employment.