FRQ Examples: Unit 3 Test will have 2 similar FRQs presented. Follow the examples to help prepare for the exam. You will be drawing your graphs and writing your responses and submitting them as an image on the exam. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. #1 The economy of IVAland is at full employment. (a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. (i) Current price level, labeled PL1 (ii) Current real output, labeled Y1 (b) Assume that consumer confidence decreases as a result of a recession caused by the cryptocurrency bubble bursting in IVALand. On your graph in part (@), show the effect of the decrease in consumer confidence on real output and price level. (c) What will be the effect of the change identified in part (b) on unemployment in IVALand? (d) Will the change in real output shown in part (b) be smaller or larger in the presence of automatic stabilizers? Explain.#2 The economy of IVAIand is in shortrun macroeconomic equilibrium. The current real output is $300 billion, and the full employment output is $200 billion. The marginal propensity to consume is 0.5. (a) Is the economy experiencing a recessionary output gap or an inationary output gap? Explain. (b) Assume IVALands's government is considering taking action to close the output gap identied in part (a). (i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve to close the output gap. Show your work. (ii) If instead IVALand's government changes taxes without changing government spending, calculate the minimum change and indicate the direction of change in taxes required to shift the aggregate demand curve to close the output gap. Show your work. (c) 1Which scal policy action, changing government spending or changing taxes, is more effective in closing the output gap? Explain. (d) Assume instead IVALands's government decides not to take any policy action. Will shortrun aggregate supply increase, decrease, or stay the same in the long run? Explain