The nation of Dodgetopia is currently experiencing a recession.

a. Draw a correctly labeled aggregate demand and aggregate supply graph that shows an economy that is experiencing a recessionary gap. Identify the current level of output as Y₁and current price level as PL₁.

b. Identify the level of output that would exist in the long run as Y₂.

c. Assuming no government policy action is taken, describe how the economy of Dodgetopia would adjust in the long run? How would the graph you have drawn reflect this adjustment?

(28 points)

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