1.  Draw an economy in an inflationary period.  (1 point)  2…

1.  Draw an economy in an inflationary period.  (1 point)  2. List two specific policies a government can enact to correct the economy. (1 point) 3. Show the change on the graph from question 1. (Do NOT draw a new graph) (1 point)  4. Draw the effect of the policies you listed on the loanable funds market. Make sure to show the change to real interest rates using directional arrows. (2 points–1 correctly labeled graph, 1 for the change and explanation).  Explain why the policy made in part 2 causes the change on the loanable funds market.  Hint: you need to discuss the governments budget.  5. Due to the change on the real interest rate in the loanable funds market, how will economic growth be affected? Explain (1 point)       

1. Draw the Phillips Curve Model, both the short-run and the…

1. Draw the Phillips Curve Model, both the short-run and the long-run.  Assume that the economy is in long-run equilibrium with an NRU at 5% and the long-run expected inflation rate of 2%. (2 points–one for labels, one for numbers placed correctly)  2. Assume that interest rates increase, show on the graph in part one (do not draw a new graph) the change this creates. (1 points) 3. After the change in part 2, assuming no fiscal or monetary policy is implemented, how will economy correct over time? Explain (1 point) and show the change on the Phillips Curve graph you drew in part 1. (1 point)