QUESTION #1: A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Assume that a counfry's economy is in a short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. a) Using a correctly labeled graph of the long-run aggregate supply curve. short-run aggregate supply curve, and aggregate demand curve, show each of the following. (Hint: Figure out what kind of gap you have when the unemployment rate is lower than the natural rate) (5 points) i) Current price level. labeled PL,. and current output level, labeled Y, i1) The full-employment output level. labeled Y= b) Assume the country's banking system has ample reserves. What monetary policy action should the country's central bank use to move the economy toward its long-run equilibrium? (2 points) i1} Expansionary or Contractionary? i1) Give one tool the central bank can use for the policy that you recommended. () Draw how the central bank's action to move the economy toward its long-run equilibrium affects the macroeconomy graph that you did for Part A. (2 points) ON YOUR GRAPH IN PART A, DRAW THE CHANGE IN AD BECAUSE OF THE CHANGE IN THE MONETARY POLICY. MAKE SURE TO INDICATE THE OLD AD. AD;,, AND THE NEW AD. AD,. (d) Based on the change in the monetary policy that you identified in part (b), will each of the following increase, decrease, or remain the same in the short mun? (3 points) (1) interest rates (ii) Real output. Explain. (ii1) Natural rate of unemployment Question #2: Assume that an economy is in a recessionary gap with an inflation rate of 2 percent and an unemployment rate of 5 percent. The nominal interest rate is 5 percent and the Natural Rate of unemployment is 3%. a. Using a correctly labeled graph with both the short-run and long-run Phillips curves and the relevant munbers from above, show the cuurent long-run equilibrium as point A. (4 points) b. Calculate the real interest rate in the long-run equilibrium. Show your work. (2 points) c. Assume now that the central bank decides to target an inflation rate of 4 percent. Assuming the banking system has limited reserves. what open-market operation should the central bank undertake? (2 points) d. How will the interest rate change you identified in part (d) affect aggregate demand in the short run? Explain. (2 points) QUESTION #3: In answering the question, you should emphasize the line of reasoning that generated your results: if is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required. in explaining your answer. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. The Bank of Uchenna has the following balance sheet. Assets Liabilities and Equity Reserves 530,000 | Demand deposits $100.,000 Loans 70,000 Property $2,000 | Equity (net worth) $2.000 Assume that the reserve requirement ratio is 20 percent. a. Calculate the dollar value of the reserves that the Bank of Uchenna is required to hold. (2 points) b. Given the current reserves, calculate the maximum value of additional loans that the Bank of Uchenna can malke. (2 points) . Xena walks into Bank of Uchenna and deposits $5.000. How can the bank use this to create more money? (2 points) d. Calculate the maximum change in money supply in the banking system as a result from a new deposit of $5.000. (3 points) e. If the Bank of Uchenna is not meeting its reserve requirement. what action can it take to meet the reserve requirement? (2 points)