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FRQ #2 In answering the question, you should emphasize the line of reasoning that generated your results; it is not enough to list the results

FRQ #2 In answering the question, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Assume the economy is a long-run equilibrium with a balanced gov't budget. A) Draw an AD/AS correctly labeled graph showing i) LRAS ii) The output labeled Ye and price level PLe B) If consumer confidence falls on the graph (a) show the short run change making sure to label the equilibrium price level PL1 and the new output Y1 C) Draw a Phillip curve graph correctly labeled with short run and long run that shows the effect of the fall in consumer confidence on inflation. The initial long-run equilibrium point should be labeled A and new short-run equilibrium point B D) If the gov't / central bank doesn't make any discretionary policy changes, how does the fall in consumer confidence affect gov't transfer payments

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