Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If
the question prompts you to "Calculate," you must show how you arrived at your final answer.
The economy of Country X is at full employment
(a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and
aggregate demand curves, and show each of the following
Current price level, labeled
PL
1
PL1
(II) Current real output, labeled
Y
1
Y1
(b) Assume that household income increases as a result of recent economic prosperity in Country X
On your graph in part (a), show the effect of the increase in household income on real output and
price level
(c) What will be the effect of the change identified in part(b) on unemployment in Country X?