For each scenario, assume we are examining the UK economy in the short-run using the AD-AS model.

Assume that in each scenario, the UK economy is initially in short-run equilibrium at point Y1, P1. In

each of these scenarios, graph by drawing an additional AD curve and/or AS curve, labeling the new

curve(s) AD2 and/or AS2 and label new equilibrium as Y2, P2. The first one has been done for you. Hint:

in only 1 scenario do both curves shift.

a) To prevent a recession, the UK government implements expansionary fiscal policy. This is carried-out

by cutting income taxes on workers.

b) The UK's central bank, the Bank of England ("BoE") sees that inflation could soon become

problematic. As a result, the BoE carries-out an open-market sale of UK government bonds.

c) The UK economy and stock market plummets because of a global pandemic. The Bank of England

responds by promoting more lending to consumers and businesses. This is done by lowering the UK

banking system's discount rate.

d) New leadership is elected to UK's Parliament. In order to trim government spending, the UK

government will decrease infrastructure spending by 5%.

e) Refer back to your answer in Part D. Will the total change in UK AD because of this change in

government spending be equal to -5%? Why or why not?