**1. ** On a carefully labeled graph, draw the dynamic aggregate supply curve. Explain why it has the slope it has.

**2. ** On a carefully labeled graph, draw the dynamic aggregate demand curve. Explain why it has the slope it has.

**3. ** A central bank has a new head, who decides to raise the target inflation rate from 2 to 3 percent. Using a graph of the dynamic *AD*–*AS* model, show the effect of this change. What happens to the nominal interest rate immediately upon the change in policy and in the long run? Explain.

**4. ** A central bank has a new head, who decides to increase the response of interest rates to inflation. How does this change in policy alter the response of the economy to a supply shock? Give both a graphical answer and a more intuitive economic explanation.

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