Please draw a labelled AD/DS model for the following question and give a through answer to "Part B" at the bottom of the page.

Model 3 points: 2008Q1 (assume Ynru); 2009Q2; 2012Q1 Precision matters more in this scenario than others we have done. Pay attention to where, exactly, your intersection points are on your AS/AD model. And make sure your model aligns to the numbers in the charts below. CHART 1: OUTPUT (Q1 2008 = 100) UNITED KINGDOM UNEMPLOYMENT RATE Percentage of the Labor Force 8.5 -8.5 112 - If GDP had kept growing at 2.5% a year 112 8- 110 -8 110 Actual output 108 108 7.5- -7.5 106 106 104 104 7- -7 102 13.7% gap 102 6.5- -6.5 100 100 98 98 6- 96 96 5.5- -5.5 94 94 92 92 Jan/09 Jan/10 Jan/11 Jan/12 2008 2009 2010 2011 2012 Sources - Thomson Datastream, Capital Economics Part B: What is your fiscal policy recommendation for the UK in 2012Q1? Think about it in high level terms: should the UK government be focusing on "stimulus" as we have defined and discussed in the Canada case? Or "austerity", defined as policies enacted by a government to reduce budget deficits and accumulated debt, typically achieved by increasing taxes and/or reducing public spending