Economics FRQ Assume that the U.S. economy is currently operating in long-run equilibrium.A. Draw a correctly labeled graph of the short and long-run Phillips Curves showingthe current state of the economy. Label the equilibrium point A.B. Assume that Canada, a major trading partner of the U.S., enters into a recession.How will the Canadian recession affect aggregate demand in the U.S.? Explain.C. On your graph of the short and long-run Phillips Curves from part (A), show theeffect that the Canadian recession will have on the U.S. economy. Label your newequilibrium point B.D. Assume that prices and wages are flexible and that U.S. policymakers take noaction. What will happen to each of the following as the economy approacheslong-run equilibrium?i. Short-run aggregate supply. Explain.ii. Short-run Phillips curveE. Assume that American policymakers are unwilling to wait for the long-runadjustment process to occur and decide to implement fiscal policy to return theeconomy to full employment. Will the price level following the fiscal policyimplementation be higher, lower, or the same as the price level that emerges fromthe SRAS shift in part (D)? Explain.F. Draw a correctly labeled graph of the U.S. loanable funds market showing how thefiscal policy implemented in part (E) above will affect the real interest rate in theU.S.G. Based on the change in the real interest rate identified above, will the long-runaggregate supply curve shift right, shift left, or remain unchanged? Explain.H. Assume that Canada's central bank responds to the Canadian recession byincreasing its purchases of bonds on the open-market. As a result of the open-market operation, how will each of the following be affected?i. Canada's nominal interest rate.ii. The supply of the Canadian dollar (CAD) in the foreign exchange market.Explain.

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Assume that the U.S. economy is currently operating in long-run equilibrium. A. Draw a correctly labeled graph of the short and long-run Phillips Curves showing the current state of the economy. Label the equilibrium point A. B. Assume that Canada, a major trading partner of the U.S., enters into a recession. How will the Canadian recession affect aggregate demand in the U.S.? Explain.