Analysis of the AD-AS model.
a) Illustrate what is the main policy message of the AS-AD model, and describe how does it relate to the 1930s Keynesian revolution in economic theory?
b) Provide as AS-AD graph of an economy in a deep recession and show the role of expansionary policy. (You need not go through all the details; just show and describe the basic shifts and why.)
c) Related to the above problem, why does AS-AD analysis of expansionary fiscal and monetary policy effectiveness typically begin with the economy at the natural rate of unemployment (NRU)?
d) What should today's policy-makers assume about the natural rate of unemployment?