Tentland has recovered from the pandemic and is now at its long-run equilibrium. However, due to massive transfer payments that were given during the pandemic, people of Tentland expect that inflation will come in the near future, encouraging them to spend more today. a. Draw the AD-AS model and explain what will happen to the price level, unemployment, and real output of Tentland in the short run. Make sure to clearly explain the adjustment process. b. Suppose the government of Tentland decides not to take any further action. On the same diagram, explain what will happen to the price level, unemployment, and real output of Tentland in the long run. Make sure to clearly explain the adjustment process.
