Suppose output exceeds the natural level of output Explain what adjustments

Suppose output exceeds the natural level of output

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4) Suppose output exceeds the natural level of output. Explain what adjustments will occur over time to the expected price level, the wage, the actual price level and the unemployment rate. Discuss what effects these adjustments have over time on equilibrium output and the price level in the AS-AD model and illustrate these effects in a diagram. 6) Based on your understanding of the aggregate supply and aggregate demand model and the IS-LM model, graphically illustrate and explain what effect a tax increase will have on the economy. In your graphs, clearly illustrate the short-run and medium-run equilibria.

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