An economy is initially in recession. Using the AD-AS diagrams below, show the process of adjustment to long-run equilibrium and discuss the costs and benefits of each approach in terms of output level and inflation rate. a. If the Fed responds by easing monetary policy (moving its reaction function down). Instructions: In the diagram below, click and drag the appropriate curve, or curves, to show the adjustment to long-run equibrium. LRAS SRAS AD Ñ» Output Y LRAS 03 SRAS es AD Output Y Benefit Click to select Cost: Cick to select b. The Fed takes no action. Instructions: In the diagram below, click and drag one, or both curves, to show the long-run changes in AD and AS given th by the Fed. LRAS SRAS ë AD Output Y LRAS SRAS AD Output Y Benefit: In Clicktoselecti-ä¸å¸, the economy will be at (Cicktoselecti the economy will be at (Cick to selectil Cost: In (Click to select)the economy will be at (Click to select)
