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I. Graph the economy moving from full employment to a recessionary gap, inflationary gap, and stagflation in the areas below. Recessionary Gap Inflationary Gap Stagflation I. In each of the following cases, explain whether AD or AS would shift and in which direction. Assume that the economy initially begins at full employment equilibrium. Then label the situation as a recessionary gap, inflationary gap, or stagflation or no problem. Finally, explain what would happen to RGDP, price levels, and unemployment. AD or AS Macro situation PLevel RGDP Unemp. 1. Consumer confidence rises once economic indicators are released for the 4th quarter of 2003. 2. The US decreases exports of Beef due to the Mad Cow disease discovery 3. Many state governments decreases spending on secondary education due to budget problems 4. The stock market rises quickly 5. Oil prices rise due to US involvement in Iraq 6. New productive knowledge makes factories more productive in a number of industries II. On the back of this worksheet, graph the adjustment process (from the macroeconomic problem in the above 3 graphs back to full employment equilibrium) if no government intervention occurs.