[20 points] Earlier this year, a drought in Taiwan, a major semiconductor producer, affected the water-intensive chip industry. Despite measures, this is expected to reduce output and raise prices. (2.a) Are these developments consistent with a dominant negative AD shock or a negative AS shock? Use the IS/LM/FE model to predict the short-run and long-run effects of this shock on Taiwan's output, interest rate, and prices. (2.b) Suppose that in response to this, Taiwan's central bank decides to reduce interest rates. Use the money market to determine what monetary policy (expansion or contraction) is needed to achieve the decrease in interest rates. (2.c) Use the AD/AS model to predict the effects of the combined shocks of (2.a) and (2.b) on Taiwan's GDP and the price level. Is the central bank targeting the price level or real GDP? (2.d) Consider Taiwan's labor market. What are the effects of the shock in (2.a) on employment, unemployment, and the real wage? How would your answer change if Taiwan's current demographic transition is reducing the labor force?