I need help with all four parts of this question. Thank you!
3. ( Policy intervention and the long – run ) Consider the AD – AS modelAD : 4 = m – ptySRAS : " = alp – {\pli + + +^The variable * represents a shack with Ely] = 0. Expectations on prices are formed followinga behavioral rule Elp) = 71 – 1. Money evolves according toMH = MIX MIL_ITEM, FLEI] = 0"The central bank controls money supply by choosing `.. The economy is currently in along – run equilibrium with E. = O and * = 0 for all t.al Unexpectedly , there is a one – time shock*{, = 5 . Show in a graph the shift in aggregatedemand and the following shift in short – run aggregate supply . Label the magnitude of bothshifts .b ) Compute values of " and " ( you can do it in terms of the original LR equilibriumprice ) in the long – run ( assuming A; = O for all 😉 . What value of A should the central bankchoose in order to keep output stable ( in the short – run ) following the shock ? How does thispolicy affect the long – run outcomes ?"C ) Back in our original long – run equilibrium there is an unexpected one – time shock y = 5 .Show in a graph the shift in the curves at the moment the shock hits and the following shift*in SRAS !* ) Compute the values of y and p ( you can do it in terms of the original LR equilibriumprice ) in the long -run . What value of A (assuming A; = O for all ; ) should the central bankchoose in order to keep output stable ( in the short – run ) following the shock?" How does thispolicy affect the long – run outcomes !"
