1. Draw an aggregate model for Dasland operating below full employment, labeling current output and price level as PL1 and Y1. (3 pts)
2. If the government increases its spending, what will be the effect on:

(a) the natural rate of unemployment: (2 pts)

(b) the cyclical rate of unemployment: (2 pts)

(c) the federal government budget? (2 pts) Explain. (3 pts)

3. Show the effect of this fiscal policy to bring the economy back to long-run equilibrium on your graph, labeling PL2 and Y2 respectively. (2 pts).

4. Assume prices and wages are now flexible. Which curve would shift in Dasland and which direction would this curve shift, then include how are price level and real output affected? (3 pts).