Given: AD: Y = 75 - 3 AS: = 6.2 + 0.8(Y - 70) Adaptive expectations: = e = -1

a. Calculate the inflation rate and output for the current period, call this period 0. Label the inflation rate and output for period 0 as (0, Y0). Round to 2 places after the decimal.

b. If the economy is not at long-run equilibrium, i) Write the AS equation for the next period, call it period 1 ii) Repeat (a) for period 1, and label the inflation rate and output for period 1 as (1, Y1).

c. Repeat (b) as many times as necessary, e.g., period 2, period 3, etc., until the economy reaches a long-run equilibrium, and use labels such as (2, Y2), (3, Y3), etc.

d. Draw a well-labelled AS/LRAS/AD diagram, show how this economy moves from its initial position to the final long-run equilibrium. Label the curves as AD0, AD1, ... , AS0, AS1, etc. and use numerical values for (0, Y0), (1, Y1), etc., in the diagrams.