The 2 questions involving AD/AD model are listed below, along with a pdf of it:

1. Assume that the US economy is in a short run equilibrium and the actual unemployment rate is greater than the natural rate of unemployment.

a. Using a correctly labeled graph of the AD/AS model, show each of the following.

i. Current price level labeled as PL1 and current output level labeled as Y1

ii. The full employment output level labeled as Yf

b. Assume that some policy changes caused interest rates to decrease.

i. How will this affect real output in the short run? Explain

ii. How will this affect the natural rate of unemployment in the short run? (no explanation needed)

c. Return to part (a.) - Assume no action is taken and the economy will adjust on its own in the long run.

i. Show on your graph in part (a.) what happens in the long run.

ii. Explain what changes you made on the graph and why.

1. Assume that the US economy is in a short run equilibrium and the actual unemployment rate is greater than the natural rate of unemployment. a. Using a correctly labeled graph of the AD/AS model, show each of the following. i. Current price level labeled as PL1 and current output level labeled as Y1 ii. The full employment output level labeled as Yf b. Assume that some policy changes caused interest rates to decrease. i. How will this affect real output in the short run? Explain ii. How will this affect the natural rate of unemployment in the short run? (no explanation needed) c. Return to part (a.) - Assume no action is taken and the economy will adjust on its own in the long run. i. Show on your graph in part (a.) what happens in the long run. ii. Explain what changes you made on the graph and why