(Solved): Use ADAS diagrams to explain the short-run and long-run effects of each of the following events ...

Use $AD?AS$ diagrams to explain the short-run and long-run effects of each of the following events on output and the price level. Assume that the policymakers take no action in the longrun. (4 points) a) A severe wildfire damages factories along the west coast b) A discovery of large oil reserves increases people's income across several southern states. Imagine a scenario where a cyber-attack disrupts the nation's payments system, making it challenging to carry out electronic transactions. As a result, individuals start to prefer having more physical cash readily available, leading to a higher demand for money. (4 points) a) Suppose the Fed does not change the money supply. According to the Liquidity Preference Theory, what happens to the interest rate? What happens to aggregate demand? Draw money market and AD-AS diagrams to explain. b) If instead the Fed wants to stabilize aggregate demand, how should it change the money supply? Show the impact on interest rate and aggregate demand. c) Identify an open-market operation that would help the Fed to stabilize aggregate demand.