1. Use the Aggregate Supply-Aggregate Demand analysis to answer the following questions. Be sure to draw the appropriate graphs and provide a short explanation for your answer wherever applicable. a. Assume that the economy is in long-run equilibrium. Draw the typical AD and AS curves. Label the equilibrium point correctly. b. There is a sharp decrease in home prices. Would the fall in home prices cause a supply shock or demand shock? Why? Explain your answer verbally. c. Explain your answer to part (b) graphically. d. Compare the equilibrium points in (a) and (c) in your diagram. What was the effect of the shock on changes in output and the price level? 2. Use the Aggregate Supply-Aggregate Demand analysis to answer the following questions. Be sure to draw the appropriate graphs and provide a short explanation for your answer wherever applicable. a. Assume that the economy is in long-run equilibrium. Draw the typical AD and AS curves. Label the equilibrium point correctly. b. There is a sharp decrease in oil prices. Assume that this economy uses oil only as an intermediate input in its production process. Will the decrease in oil prices result in a supply shock or a demand shock? Why? Explain your answer verbally. c. Explain your answer to part (b) graphically. d. Compare the equilibrium points in (a) and (c) in your diagram. What was the effect of the shock on changes in output and the price level