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Answer the Questions Based on the Following Diagram

Question 5

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Answer the questions based on the following diagram. Answer the questions based on the following diagram. (a) Assume the economy is initially at point B1 and there is an increase in aggregate demand, which results in a 4% increase in prices.Describe the short-run and long-run outcomes that would result in this economy.(b) Assume the economy is initially at point B2, and there is an increase in aggregate demand.What will happen in the economy? Explain, using the graph.(c) Based on this diagram, what would the prediction be for the natural (full-employment) rate of unemployment? (a) Assume the economy is initially at point B1 and there is an increase in aggregate demand, which results in a 4% increase in prices.Describe the short-run and long-run outcomes that would result in this economy.(b) Assume the economy is initially at point B2, and there is an increase in aggregate demand.What will happen in the economy? Explain, using the graph.(c) Based on this diagram, what would the prediction be for the natural (full-employment) rate of unemployment?

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(a) In the short run, the unemployment r...

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