The economy is in a recession with high unemployment and low output. a. Draw a graph of

Chapter 34, Problem Problems and Applications 34.5

(choose chapter or problem)

The economy is in a recession with high unemployment and low output. a. Draw a graph of aggregate demand and aggregate supply to illustrate the current situation. Be sure to include the aggregatedemand curve, the short-run aggregatesupply curve, and the long-run aggregatesupply curve. b. Identify an open-market operation that would restore the economy to its natural rate. c. Draw a graph of the money market to illustrate the effect of this open-market operation. Show the resulting change in the interest rate. d. Draw a graph similar to the one in part (a) to show the effect of the open-market operation on output and the price level. Explain in words why the policy has the effect that you have shown in the graph.