Reread the inflation shock example (event #1) in Section 13.5. Suppose the size of the shock is ō0.
(a) In the AS/AD graphs describing the response of the economy to the inflation shock, we labeled the initial response of inflation as π1 and initial output as Ỹ1. What are the values of these key points in terms of the parameters of the model? That is, by how much does output fall, and what is the initial inflation rate?
(b) Now suppose the parameters of the AS and AD curves take the following values: ō0 = 2%, ā = 0,  = 1/2,  = 1/2, = 1/2, and  = 2%. Solve for the value of short-run output and the inflation rate for the first 3 years after the shock.
(c) Comment briefly on your results.