The economy is operating at full employment. MPC=.90. a) Draw the AD, SRAS and LRAS graphs. Label full run output and price level Qy and PLy. Label all parts of the model. b) Canada, a major trading partner, their economy is in a recession, income is decreasing. i) Draw the change in the model based on this information. ii) What happens to PL, output and unemployment? C) In the long run, what will happen to the economy? i) Draw the shift based on the long run situation ii) What was the reason the shift or change occurred. 2) The economy is operating at more than full employment. MPC =.75. The current level of output Is $1T (1000B). The full employment output is $800B. a) Draw the AD, SRAS and LRAS graphs. Label full run output Qy. Label current equilibrium PL1 and Q1 Label all parts of the model. b) If nothing is done, what will happen to the economy in the long run? i) Draw the change/shift based on the long run situation ii) What was the reason the shift or change occurred C) Suppose the government does not want to wait for the long run and needs to do something. i) What are the 2 tools of fiscal policy? ii) What is the amount of government spending that is required to close the gap? Is it an increase or decrease? Show your work iii) If the government decides to use taxes instead, how much will the government have to change taxes? Is it an increase or decrease? iv) Is the amount of taxes changed larger, smaller or the same as the change in government spending? Why