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Question 3 a. (O.5 point) Graphically depict the U.S. economy in long-run equilibrium. Label each of the curves (AD,SRAS,LRAS,MS,MD), and the equilibrium price level, PA, output, YA, quantity of money in the public's hands, MA, and the corresponding purchasing power of money. b. (2 points) Say the Federal Reserve decreases its target federal funds rate. Graphically depict what happens in the economy using the same graphs as part (a). Clearly label each of the following (if applicable): i. the initial long-run equilibrium, A ii. the new curves ADnew,SRASnew,LRASnew,MnewS,MnewD iii. the short-run equilibrium, B iv. the short-run equilibrium price level, PB v. the short-run equilibrium level of output, YB vi. the new long-run equilibrium, C vii. the new long-run equilibrium price level, PC, and purchasing power of money viii. the new long-run equilibrium level of output, YC ix. the new long-run equilibrium quantity of money in the public's hands, MC c. (2 points) Graphically depict the corresponding Phillips Curve model for this scenario. Clearly label each of the following (if applicable): i. the initial long-run equilibrium, A ii. the initial long-run level of unemployment, uA iii. the initial long-run inflation rate, A iv. the new curves LRPCnew,SRPCnew v. the short-run equilibrium, B vi. the short-run equilibrium level of unemployment, uB vii. the new long-run equilibrium, C viii. the new long-run inflation rate, C ix. the new long-run equilibrium level of unemployment, uC d. (O.30 points) What happens to the overall price level, output, and unemployment during the short-run fluctuation in output? e. (0.20 points) What part of a business cycle does the fluctuation from equilibrium A to B reflect

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