Using the AS/AD model, draw two separate graphs both showing an economy in a simultaneous long-run and short-run equilibrium.

6. Using the AS/AD model, draw two separate graphs both showing an

economy in a simultaneous long-run and short-run equilibrium.

(a) In the first graph, show the effect of an increase in foreign income

and the expected adjustment on the supply side.

(b) In the second graph, show the effect of an open market sale by the

central bank and the expected adjustment on the supply side.

Make sure you label all relevant axes, curves and points. Briefly explain

the effect of these changes on real output and the price level.