Use the AD/AS graphs to solve the following question:

Consider an economy that is initially in the LR equilibrium at point 1. At this point, inflation is equal to the central bank's target rate.

(a) Suppose the government introduces a fiscal stimulus by decreasing tax. Show the effects of this policy in the graphs and label the new equilibrium as point 2.

(b) If the central bank's objective is to stabilize inflation, what should happen to the MP curve (ease, tighten, or no change)?

(c) Show the effects of the change in monetary policy in the graphs and label the new equilibrium as point 3.

(d) Looking at points 1 and 3, how much does the stimulus change output in the long run?

(e)If the central bank's objective is to stabilize output, do (b)-(d) again.