Question: 3. Aggregate supply shocks and the medium run Consider an economy with output equal to the natural level of output. Now suppose there is an

3. Aggregate supply shocks and the medium run Consider an economy with output equal to the natural level of output. Now suppose there is an increase in unemployment benefits.

a. Using the model developed in this chapter, show the effects of an increase in unemployment benefits on the position of the AD and AS curves in the short run and in the medium run.

b. How will the increase in unemployment benefits affect output and the price level in the short run and in the medium run?

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