c) Let's assume the economy starts at equilibrium and the long-run level of output again. Now, there is an increase in demand for New Zealand milk exports. Which of the curves in the AD-AS model is affected? Why?

d) Draw the effects of c) on a new AD-AS diagram, labelling both the original and new equilibrium points. What has happened to the price level and output? What has happened to the inflation rate and output growth rate? Finally, does a recessionary or inflationary gap result?