You have been dispatched to the Republic of Agrofossilia, a developing country heavily dependent on its agriculture and petroleum sectors currently experiencing a severe economic crisis that started over the past couple months. After arriving, you immediately meet with the Minister of Finance. The Minister of Finance advises Parliament and the President of the country on the government's budget and collects taxes from the population. In the past, Agrofossilia controlled its own money supply, but ten years ago the country joined a currency union in its region, and now it no longer has direct control over its money supply. Its money supply is now controlled by the Central Bank of West Cartesian States (CBWCS). Figure 2: Changes in Agrofossilia's Money Supply Since Previous January 20.00% 15.00% 10.00% 5.00% 0.00% March April July -5.00% May June August October January February September November -10.00% -15.00% -20.00% 2.c In looking at Agrofossilia's recent history you notice that the increase in inflation in the country coincided with large economic growth in all of Agrofossilia's major trading partners and a corresponding spike in foreign demand for Agrofossilia's oil exports. Around that same time, Agrofossilia discovered a major new oil field which people expect to increase the country's oil producing capacity up to 40 percent in the near future. Use the Multiplier Model to explain to the Minister how these two events are likely driving a short-run inflationary gap in the country. (By "use the Multiplier Model" I mean draw Aggregate Production (AP) and Aggregate Expenditures (AE) curves for Agrofossilia in a way to depict the effects of the new oil field and the demand shock for the country's products.) 2.d Respond to the following: (1) If your analysis in 2.c is correct, explain to the Minister what the government can do with its fiscal policy in order to reduce this inflationary pressure that has her concerned. (2) Explain why this would help her to reduce inflation and to stabilize the crisis. (3) Explain what would happen in the long run if the government did not intervene at all with fiscal policy. Again situate your reasoning in the Multiplier Model. 2.e Respond to the following: (1) What does the Phillips Curve suggest will be the effect of this fiscal policy intervention on employment in Agrofossilia? (2) Is this a concern for the Minister? You have been dispatched to the Republic of Agrofossilia, a developing country heavily dependent on its agriculture and petroleum sectors currently experiencing a severe economic crisis that started over the past couple months. After arriving, you immediately meet with the Minister of Finance. The Minister of Finance advises Parliament and the President of the country on the government's budget and collects taxes from the population. In the past, Agrofossilia controlled its own money supply, but ten years ago the country joined a currency union in its region, and now it no longer has direct control over its money supply. Its money supply is now controlled by the Central Bank of West Cartesian States (CBWCS). Figure 2: Changes in Agrofossilia's Money Supply Since Previous January 20.00% 15.00% 10.00% 5.00% 0.00% March April July -5.00% May June August October January February September November -10.00% -15.00% -20.00% 2.c In looking at Agrofossilia's recent history you notice that the increase in inflation in the country coincided with large economic growth in all of Agrofossilia's major trading partners and a corresponding spike in foreign demand for Agrofossilia's oil exports. Around that same time, Agrofossilia discovered a major new oil field which people expect to increase the country's oil producing capacity up to 40 percent in the near future. Use the Multiplier Model to explain to the Minister how these two events are likely driving a short-run inflationary gap in the country. (By "use the Multiplier Model" I mean draw Aggregate Production (AP) and Aggregate Expenditures (AE) curves for Agrofossilia in a way to depict the effects of the new oil field and the demand shock for the country's products.) 2.d Respond to the following: (1) If your analysis in 2.c is correct, explain to the Minister what the government can do with its fiscal policy in order to reduce this inflationary pressure that has her concerned. (2) Explain why this would help her to reduce inflation and to stabilize the crisis. (3) Explain what would happen in the long run if the government did not intervene at all with fiscal policy. Again situate your reasoning in the Multiplier Model. 2.e Respond to the following: (1) What does the Phillips Curve suggest will be the effect of this fiscal policy intervention on employment in Agrofossilia? (2) Is this a concern for the Minister