Question 2. Suppose aggregate demand and aggregate supply in the economy are given by AD : y = m -p SRAS : y = ap - E(p)] where y is output, p is the price level, E(p) is the expected price level, m is money supply, and a is a constant. Note that all lower case variables are in logs, so any variable r := In(X). Let b E (0, 1) be the fraction of firms in the economy who can immediately adjust their prices to a price change. It can be shown that p = E(m) + (1 -b)(m - E(m)) a) Draw the AD/AS diagram with p on the vertical axis and y on the horizontal axis (there should be three curves). Label all axes, curves, and relevant points. Find the slopes of the aggregate demand (AD) and short-run aggregate supply (SRAS) curves? b) Consider two countries X and Z, where ax