Assume the aggregate demand curve is given by ????=120.4???? and the aggregate supply curve by ????=1.0+2.0(????12).

a. Find the short-run equilibrium level of output and inflation and plot your results in a graph.

b. Is the short-run equilibrium you have found in (a) also a long-run equilibrium? If not, how would the self-correcting mechanism ensure that long-run equilibrium is attained? Answer this question with the help of a graph.