Suppose the economy is in a long-run equilibrium. Questions 5.1 Explain the theory behind the shapes of the short-run and the long-run Phillips curves. Specifically explain why the short-run Philips curve differs from the long-run Philips curve. [3 marks] 5.2 Suppose a wave of business pessimism reduces aggregate demand. Explain the effect of this shock in terms of both the short-run and long-run Philips curves and provide a brief explanation. [3 marks] 5.3 If the RBA undertakes active monetary policy, can it return the economy to its original inflation rate and original unemployment rate? If yes, specify the actions which the RBA should undertake and explain the consequences of these actions in terms of the Phillips curves. If not, explain why. [4 marks]