Draw AD-AS curve and give explanation for full employment.
Suppose which there is an "inflation scare," which is, suppose market participants increase their expectations of future inflation.
With the help of AD-AS diagrams, describe the effects of an increase in the expected rate of inflation on the equilibrium value of the price level and real GDP if:
(1) The U.S. economy is initially at full employment.
(2) The U.S. economy is initially below full employment.
In your explanations, be clear about the interconnections among markets.