Suppose the economy is currently in short run macroeconomic equilibrium, with actual GDP smaller than potential GDP.

1. (a)Depict this situation using AD-AS, being sure to label all curves and axes. 5 points.
2. (b)Give an example of an automatic stabilizer, and explain how it could close the gap this economy has. 5 points.
3. (c)What open market operation could the Federal Reserve carry out, to close this gap? Show graphically the effect it would have. 5 points.