I. Assume that the German economy is currently producing below the full employment level of

output with a balanced budget.

a$.$ Draw a correctly labeled ADAS model with each of the following components:

i$.$ Current output and price level, labeled as $Y_{1}P{L}_1,$ respectively

ii$.$ Full$-$employment output, labeled as $Y_F$

b$.$ The German government increases spending on goods and services by $$100$ billion, which

is financed by borrowing. How will the increase in government spending affect each of the

following?

i$.$ Cyclical unemployment

ii$.$ The natural rate of unemployment