Australia's economy is in short-run equilibrium with an inflationary gap of $300 billion, and the MPS is 0.2. The expected inflation rate is 4%, and the natural rate of unemployment is 6%.

1. Based on the Phillips curve graph, is the actual inflation rate greater than, less than, or equal to the expected inflation rate of 4% in Australia? Explain.
3. Assume the government takes no policy action in regards to Australia's economy.
4. What will happen to the unemployment rate in the long-run? Explain.
6. How will the long-run adjustment process be shown in the Phillips curve graph?
7. Assume the government of Australia is considering using fiscal policy to address the inflationary gap.
8. If the government chooses to decrease spending, calculate the minimum change in government spending required to decrease aggregate demand by the amount of the inflationary gap.
10. How will the effect of the government's action in (3)(1) be represented in the Phillips curve model?
12. Suppose the government wants to maintain a balanced budget and decreases both government spending and income taxes by $300 billion. Will this policy make the gap larger, smaller, or have no effect? Explain.
13. Suppose the government chooses to only decrease government spending. Based on the loanable funds market, what will happen to the following?
14. Price of previously issued bonds. Explain.
16. Capital stock.

Australia's economy is in short-run equilibrium with an inflationary gap of $300 billion, and the MP8 is 0.2. The expected inflation rate is 4%, and the natural rate of unemployment is 6%. 1 . Based on the Phillips curve graphl is the actual inflation rate greater thanI less thanI or equal to the expected inflation rate of 4% in Australia? Explain. 2. Assume the government takes no policy action in regards to Australia's economy. 1 . What will happen to the unemployment rate in the longrun? Explain. 2. How will the long-run adjustment process be shown in the Phillips curve graph? 3. Assume the government of Australia is considering using fiscal policy to address the inflationary gap. 1 . If the government chooses to decrease spending, calculate the minimum change in government spending required to decrease aggregate demand by the amount of the inflationary gap. 2. How will the effect of the government's action in (3X1) be represented in the Phillips curve model? 3. Suppose the government wants to maintain a balanced budget and decreases both government spending and income taxes by $300 billion. Will this policy make the gap larger, smaller, or have no effect? Explain. 4. Suppose the government chooses to only decrease government spending. Based on the loanable funds market, what will happen to the following? 1 . Price of previously issued bonds. Explain. 2. Capital stock