Assume the United States economy is currently at equilibrium.

1.Using a correctly labeled aggregate demand and supply graph, show

a.Full employment output (yf)

b.Current price level (PL1)

2.World War III breaks out and the US has to get involved.The president to increase the military budget by 40%.On your graph from #1, show what will happen in the economy, labeling the new equilibrium as Q2, PL2.

3.Using a correctly labeled graph of the loanable funds market, show how the President's decision will affect the economy.