Assume that the United States economy is currently operatingatabovefull-employment level of real gross domestic product with a balanced budget.

(a) Draw a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply, and show each of the following in the United States.

(i) Current output and price level, labeled as Y₁and PL₁

(ii)Full-employment output, labeled asY_f

(b) The United States governmentdecreasesspending on goods and services by $50billion. How will thedecrease in government spending affect each of the following?

(i) Cyclical unemployment

(ii)The natural rate of unemployment

(c) If the marginal propensity to consume is equal to 0.75, calculate themaximumpossible change in real gross domestic product that could result from the $50 billiondecrease in government spending.

(d) Using the information from part (c) show this change on your graph in part (a) and label the new output as Y₂ and PL₂.