objective is to understand the problems (1+2) - if possible fill in answers on provided images

PROBLEM 1 Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Now adjust the graph to show the new long-run equilibrium. 1. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? (Circle all that apply) Nominal wages, prices, and perceptlons adjust downward to this new price level. The government Increases spending to Increase aggregate demand. Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases taxes to curb aggregate demand. 2. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? (Circle all that apply) Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run equilibrium. Nominal wages at the initial equilibrium are less than nominal wages at the new long-run equilibrium. Real wages at the lnltlal equilibrium are equal to real wages at the new short-run equilibrium. Real wages at the initial equilibrium are equal to real wages at the new long-run equilibrium. 3. Judging by the impact of the money supply on nominal and real wages, this analysis W consistent with the proposition that money has real effects in the short run but is neutral in the long run. PROBLEM 2 The economy begins in long-run equilibrium. Then one day, the president appoints a new chair of the Federal Reserve. This new chair is well known for her View that inflation is not a major problem for an economy. 1. Which of the following statements accurately describes what would happen as a result of this news? (Circle 3" that apply) People would expect the price level to fall. The nominal wage that workers and rms agree to in their new labor contracts would be higher than it would be otherwise. The protability of producing goods and services at any given price level would decrease. The short-run aggregate-supply curve would shift to the right. 2. If aggregate demand is held constant, the shift in the aggregate-supply curve will cause the price level to IRise g Fall) and the quantity of output produced to IRise t Fall}