Unit 1: Recessions & Inflations: Main Macro Graph & Fiscal Policy Worksheet z.2: Self Adjustment in the Long Run EQ: How do decisions made by households. businesses & government affect our national economy? Learning Targets: I can define recessionary & inflationary gaps, I can graph them, I can explain how they are fixed in the long-run The economy of Disneyland has an actual unemployment rate that is less than the natural unemployment rate a Draw a correctly labeled graph of the long run aggregate supply. short-run aggregate supply and aggregate demand curves, and show each of the following 1) Current price level labeled PL 1 2) Current real output labeled Y1, 3) Full employment output labeled YF b Suppose that consumer spending increases On your graph in part (a) show the effect of the increase in consumer spending on the equilibrium price level and real output in the short run c Assume that the government of Disneyand decides not to take any policy action What will happen to this economy in the long-run? Explain & show on graph above. d Assume instead that the economy of Disneyland is experiencing higher actual unemployment rates than the natural rate. If no policy action is taken, what will happen to transfer payments in this situation? Explain