Natural level of output = $560 b

Actual level of output = $500 b.

a)Using the AD- AS model illustrate how this situation can be represented. Make sure your diagram is fully labelled to reflect all relevant information.

b)With reference to the AD-AS model in part a), explain the process by which self-correction takes places to restore the economy's natural level of output. Please elaborate as I do not understand the theory of this.

c) Illustrate the scenario from parts a) and b) to show the impact on inflation and unemployment using the Philips Curve. Be sure to label your diagram and indicate the corresponding points a) and b) on your diagram.