l. Short-run macroeconomic equilibrium a. Explain what the short-run macroeconomic equilibrium is. b. Suppose the aggregate price level is not at the equilibrium level. [To imagine this, draw a SRAS line and an AD line. Note where PE is. First, draw a horizontal line across your picture that is higher than PE- This is a price level that is higher than PE- Where this new line crosses the SRAS is where you nd the level of aggregate supply, and where this line crosses the AD is the level of aggregate demand.) What can you say about the levels of aggregate demand and aggregate supply in this case if the aggregate price level is higher than the equilibrium aggregate price level? 0. Now, draw a horizontal line in your picture below PE. What can you say about the levels of aggregate demand and aggregate supply if the aggregate price level is lower than the equilibrium aggregate price level? 2. Demand shocks a. What is a demand shock? b. Give an example of a demand shock and draw a picture. 0. What happens to the equilibrium output level in the short run with your example of a demand shock? Be specic about the resulting equilibrium price level and output level. d. What if your shock moves in the opposite direction what will be the resulting equilibrium? e. Be specic about the resulting equilibrium price level and output level. 3. Supply shocks a. What is a supply shock? b. Give an example of a supply shock and draw a picture. c. What happens to the equilibrium output level in the short run with your example of a supply shock? Be specic about the reSulting equilibrium price level and output level. d. What if your shock moves in the opposite direction what will be the resulting equilibrium? Be specic about the resulting equilibrium price level and output level. 4. Long run adjustment process a. What is the long-run adjustment process in the economy when we are at a short-run equilibrium below potential output (YP )? Be specic as to why things change and what the outcome is. (What happens to the price level and the output level in the long run compared to the short-run equilibrium?) 5. What is stabilization policy