Suppose the economy starts at point 1 in the aggregate supply-aggregate demand (AS-AD) graph and at point A on the Phillips curve graph. Points 2 and 3 start out stacked on point 1, but they will need to be moved to the proper locations that reflect steps 2 and 3 described below. Likewise for points B and C. The AS-AD graph reflects two aggregate demand curves (ADI and AD2), the long-run aggregate supply curve (LAS) and two short-run aggregate supply curves (SAS1 and SAS 2). The Phillips curve graph reflects the long-run Phillips curve (LRPC) and the short-run Phillips curve (SRPC). The central bank decides to lower the unemployment rate below the natural rate by decreasing the interest rate. Place point 2 on the AS-AD graph and point B on the Phillips curve graph to describe the short-run macroeconomic equilibrium that results. Likewise, place points 3 and C to describe the long-run full-employment equilibrium. LAS LRPC SAS2 SAS1 Price level Inflation rate (%) 2 3 SRPC2 A B ADI AD2 C SRPC1 Real GDP Unemployment rate (%)