2. Suppose the economy is initially in long-run equilibrium Page 317 and experiences a favourable inflation shock. a)Explain how the SRAS line is affected in the short run. b)Use your result for part (a) along with an AD–AS diagram to illustrate and explain what will happen to output and inflation in both the short run and the long run if the Reserve Bank accommodates the favourable inflation shock. c)Use your result for part (a) along with an AD–AS diagram to illustrate and explain what will happen to output and inflation in both the short run and the long run if the Reserve Bank does not accommodate the favourable inflation shock. LO 12.1 MEDIUM