Can someone please help me with this question, please show work and explain thank you !!
1. Recall the Aggregate Supply & Demand model produced in Chapter 10:
a) Draw a graph of the Aggregate Supply & Demand model in long-run equilibrium. Lable all curves, axes, and the equilibrium output and price.
b) Now, imagine credit cards are introduced into the economy and are widely available for use. Show on the graph you just created how this will impact the economy and, in a couple of sentences, describe how the economy transitions from this new state back to long-run equilibrium.
c) In response to this shock, the Fed arranges a Federal Open Market Committee (FOMC) meeting to discuss their policy options. What should they do, if anything, to keep the price level stable?
2. Using the same Aggregate Supply & Demand model from problem 1:
a) Draw a graph of the Aggregate Supply & Demand model in long-run equilibrium. Lable all curves, axes, and the equilibrium output and price.
b) Now, imagine that a drought destroys crops in this economy. Show on the graph you just created how this will impact the economy and, in a couple of sentences, describe how the economy transitions from this new state back to the long-run equilibrium.
c) In response to this shock, the Fed arranges a FOMC meeting to discuss their policy options. What should they do, if anything, to keep the price level stable?