Question
1a. Show the effect of a negative real shock on AS/AD. (Let's just assume that the short and long run are the same here.) 1b.
1a. Show the effect of a negative real shock on AS/AD. (Let's just assume that the short and long run are the same here.)
1b. Now imagine that the central bank sees the effect of this on inflation first and tries to counteract it. What will they do? Show this on another graph. Indicate both the short and long run.
1c. Now imagine instead that the central bank sees the change in output and tries to counteract that. What will they do? Show this on a third graph. Indicate both the short and long run.
You can use whichever axes you want but make the SRAS curve curvy.
Please write/type out the answers neatly.
If you don't understand, then please leave a comment or question. Thank you.
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