This question uses material from Sections 9.5 . 2 and 9.5 .4 of the Appendix. For a

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This question uses material from Sections 9.5 . 2 and 9.5 .4 of the Appendix. For a benchmark case, draw the \(P C-M R\) and the \(I S-R X\) diagrams after an inflation shock. Now increase the interest sensitivity of aggregate demand (i.e.

a) and redraw the graphs. What has happened to \(r_{0}\) and \(q_{0}\) ? Explain your results.

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