questions:

1. Assume the US. economy has been operating at output levels beyond full employment {a} Draw a conectly labeled graph of aggregate demand and aggregate supply and show each of the following. a. The longrun aggregate supply curve. b. The current equiibn'um output and price levels, labeled and, respectively. {b} Assume that no policy action is taken. a. Show on your graph from part [a] the change in shortan aggregate supply that will retum the economy to the natural rate of output. Explain why this happens. b. Label the new equilibrium output, , and price levels, . {c} Monetary policy authorities will respond to the change in price level that occurred in part {b}. How might the central bank respond to the change you described in part {b}? {d} Draw a conectly labeled graph of the money market. a. Label the equilibrium interest rate. b. Show on your graph the change in money supply that will occur due to the monetary policy described in part {c}. (1 Show on your graph the change in interest rates that will occur due to the monetary policy described in part {c}. {e} At the same time, assume that policymakers at the Bank of England enforce an expansionary monetary policy. a. Using a conectly labeled graph of the foreign exchange market for the US. dollar, show how the relative change in interest rates between the U5. and England will affect the value of the dollar versus the pound. Expl ain. b. What affect will this fluctuation have on net exports in the United States