Question: 14. Problems with Active Policy Use an ADAS diagram to illustrate and explain the short-run and long-run effects on the economy of the following situation:

14. Problems with Active Policy Use an AD–AS diagram to illustrate and explain the short-run and long-run effects on the economy of the following situation: Both the natural rate of unemployment and the actual rate of unemployment are 5 percent.

However, the government believes that the natural rate of unemployment is 6 percent and that the economy is overheating.

Therefore, it introduces a policy to reduce aggregate demand.

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