Q8. Ill-regulations reduce the productivity of an economy. 1. (5pts.) If there is no policy response, then what happen in the market? Show your argument using the aggregate demand and aggregate supply curves (Short, Long-run) .

2. (5pts.) If the government enter the market actively, then what happen in the market? State how the Fed should behave to stabilize fluctuations in output and inflation. Show your argument using the aggregate demand and aggregate supply curves (Short, Long-run) .