UNIT 3 Aggregate Demand and Aggregate Supply - Practice FRQ 1. Assume that the United States economy is currently in a recession in a short-run equilibrium. to) Draw a correctly labeled graph of the short-run and long-run Phillips curves. Use the letter A to label a point that could represent the current state of the economy in recession. (b) Draw a correctly labeled graph of aggregate demand and aggregate sapply in the recession and show each of the following. ii) The long-run equilibrium output. labeled Y, (ii) The current equilibrium output and price levels. labeled Y, and PL, respectively to) To balance the federal budget, suppose that the government decides to raise income taxes while maintaining the current level of gowmment spending] On the graph draw in part (b). show the effect of the increase in taxes. Label the new equilibrium output and price levels Y3 and Fla. respectively. (c) Now assume instead that the government and the Federal Reserve take no policy action in response to the MISSION. (i) [n the long run. will the shortrun aggregate supply increase. decrease, or remain unchanged? Explain. (ii) In the long run, what will happen to the natural rate of unemployment