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For each of the following scenarios draw an AD/AS graph at full employment. Label AD, SRAS, LRAS, PL, Y and the full-employment level of output (YE) on the graph. Then show the change on the graph as described in the scenario. Labeling the change with either (AD1) or (SRAS1), (PL1) and (Y1).

1. The government cuts business and personal income taxes and increases its own spending.

2. The government increases the personal income tax, Social Security tax, and corporate income tax. Government spending stays the same.

3. Government spending goes up while taxes remain the same.

4. The government reduces the wages of its employees while raising taxes on consumers and businesses. Other government spending remains the same.

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