Question: A.Create a graph reflecting equilibrium in the AS-AD model. Be sure to label curves, axes and equilibrium values. B.Model the effect of an increase in

A.Create a graph reflecting equilibrium in the AS-AD model. Be sure to label curves, axes and equilibrium values.

B.Model the effect of an increase in government spending.

C.Assuming the central bank targets the inflation rate at the equilibrium rate, how does the increase in government spending affect output and the inflation rate?

D.If the central bank reduces its inflation target, how is output affected in the short and long run?

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