Suppose an economy is in short-run and long-run equilibrium.

a. Draw an AD-AS diagram showing the above condition and label it as point A

b. The failed military coup attempt had created widespread feelings of insecurity among business people that they decided to relocate their main office and production base to other countries. Explain the impact on output, employment, and the price level using your AD-AS diagram. Label the new short-run equilibrium as point B.

c. Explain what will happen if the government chooses not to take any action and leaves self-correction to the market mechanism. Explain how the long-run equilibrium in the AD-AS diagram in point (b) above can be achieved and label point C the new equilibrium.

d. Explain what happens if the government decides to use macroeconomic policies to address the situation in point (b). What should the government do and how can a long-term balance be achieved? Use the same AD-AS diagram in your answers to points (a), (b), (c), and label point D in the new equilibrium.