Y6

9. For this question, you will demonstrate the impact of a given event using AD/AS analysis. (a) Use the axes provided above to draw the economy in a long-run equilibrium according to the AD/AS model. Label the axes and all curves. Label the equilibrium in each graph with the letter "A". (b) On the graph, indicate the value of the natural level of output using, Y , the current value of output, Y1, and the current price level, P1. (c) Consider the impact of an increase in the money supply by the central bank. Include on your graph the short-run equilibrium. Label this "B". Also indicate the short-run equilibrium output, Y2, and price level, P2. (d) Include on your graph any adjustments that would take place in the absence of any government intervention. Label the long-run equilibrium "C". Also indicate the long- run equilibrium output, YLR, and price level, PLR. (e) Provide an economic description of the events behind the adjustments. (f) Suppose that instead of allowing the economy to proceed from the short-run to the long-run equilibrium, the government decides to maintain Y = Y2. Would the economy remain at point B? Explain your answer.