In the1970s,the United States had a situation of stagnation(little economic growth)and inflation.The likely cause of this situation were the oil shocks of the1970s.

A-Assume that we start the1970s in a situation offull-employment(short-runand long-run equilibrium).Explain using the AS/AD model,howstagflationis created.Be specific on whatcurve(s)move,whichway(please use right and/or left;not up anddown).(4points)

B-Was the Federal Reserve(and/or Federal Government)incompetentfor not solving these problemsduring the1970s?Explain your answer by determining the choices policy makers hadat that time using the AS/ADmodel.(4points).

C-In1982,the FED raised interest rates veryaggressively. Use the AS/AD model to determine the likely outcome of their choice in terms of GDP growth andinflation.(4points).