Panel $1$: The IS$-$LM Model

Intert

Rate

Panel $2$: The Phillips Curve $($ E pi is Expected Inflation$)$

I

Panel $4$: Aggregate Demand $-$Aggregate Supply Model

Part $1$: At the original equilibrium at point A with interest rates at $7\mathrm{.}2\%,$ expected inflation at E$1$ and$$actual$$inflation at $1\mathrm{.}4\%,$ the economy is: $$ is in a short$-$run equilibrium with recessionary gap.is in a short$-$run equilibrium with inflationary gap.is in a long$-$run equilibrium.has no output gaps because the rate of inflation is low.is showing evidence of stagflation.is in a short$-$run equilibrium with recessionary gap. $$

Part $2$: From the original equilibrium at point A$,$ suppose an expansionary monetary policy shifts the LM curve to LM$2$ and reduces interest rates to $6\%.$ The policy affects Planned Expenditure by:$$ reducing consumption expenditures, business investment expenditures, and net exports.raising consumption expenditures and business investment expenditures, but reducing net exports.raising consumption expenditures, business investment expenditures, and net exports.temporarily reducing inflation expectations to encourage more business investments.reducing consumption expenditures, business investment expenditures, and net exports. $$

Part $4$: In Panel $2,$ if the public's inflationary expectations is E$1$and actual inflation is at $1\mathrm{.}4\%$:$$ actual unemployment is at $4\mathrm{.}4\%$actual unemployment is at $6\mathrm{.}9\%$actual unemployment is at $10\mathrm{.}0\%$actual unemployment can be at $4\mathrm{.}4\%,6\mathrm{.}9\%,$ or $10\mathrm{.}0\%.$actual unemployment can be at $4\mathrm{.}4\%,6\mathrm{.}9\%,$ or $10\mathrm{.}0\%.$