Q1. Draw an AD-AS diagram representing the U.S. economy in a recession. Also draw a diagram of the U.S. labor market in the recession. Illustrate on the diagrams and explain how the U.S. economy may self-correct back to the long-run equilibrium where actual GDP equals to full GDP and there is full employment.
Q2. Bond A pays $8000 in 20 years Bond B pays $8000 in 40 years assume these are zero coupon bonds which means the $8000 is the only payment the bond holder receives if the interest rate is 3.5% what is the value of the bond today? which bond is worth more? Why? if interest rate increases to 7% what is the value of each bond? which bond has a larger % change in value?