SamsTown is experiencing high inflation.

A) Draw a correctly labeled graph of aggregate demand and aggregate supply, and show each of the following.

i) Long-run aggregate supply curve

ii) Current output and price level

B) Assume that policy makers take no action and that prices and wages are flexible. Explain what will happen to each of the following.

i) Short-run aggregate supply

ii) Long-run aggregate supply

iii) Employment

C) The government feels that too many people are unemployed. As a result, it has decided to deficit spend in order to generate growth. Draw a correctly labeled graph of the loanable funds market. Show how real interest rates will be affected by the government's decision.