Part (a) Start by graphing each scenario in long run equilibrium. Then evaluate the effects of the prompt and show that shift on the same graph. Fully label all parts of your graph. Next, explain what happens to output, real GDP, unemployment, price levels & inflation. Finally, state whether the result is an inflationary gap or a recessionary gap and prove it by comparing current output to potential output.

Part (b) Because prices & wages are flexible, now use the automatic stabilizer idea to show on the same graph from part (a) how SRAS would adjust the recessionary or inflationary gap back to full employment level. Finally, explain why this non-discretionary fiscal policy caused the SRAS to shift.

1. Children convince their parents to purchase more "big ticket" items for the Holidays.

2. A large purchase of U.S. wheat by Canada.

3. A cut in Federal spending for Health Care.

4. The complete disintegration of OPEC caused oil prices to fall resulting in businesses increasing their investments in inventory production.

5. A 10% decrease in personal income tax rates.

6. A significant increase in business expectations about future economic conditions.

7. A severe recession in a country that imports corn from the U.S.