9. (32 pts. ) Pandemic and AD/AS. The current health crisis has impacted the US economy in several and profound ways. In this question, you will focus on its impact on the production costs. In particular, consider the recent increases in the cost of production due to higher input costs and/ or the economic shutdown. One example of this type of shock is the price of a meal in a restaurant: it became infinity due to the current shutdown. Also, all the economic activities that are still functioning had to be restructured and now include the risk of Covid19. Overall, it is currently more costly to produce the goods and services than in January. a. (8 pts.) How do you interpret this shock in the context of the AS/AD model? What are the short-run effects on prices, real GDP growth and unemployment for the economy? Illustrate the short run effects below. Assume that the economy starts at the long-run equilibrium. b. (5 pts.) If policy makers do not respond to this change, what would be the long run impact on the price level and output? Be sure to illustrate AND carefully describe how and what would adjust in the long run. c. (6 pts.) Based on the impact of this shock in the real output and prices, according to Taylor rule, how should the Central Bank change the nominal interest in response? page 6 of 9 Economics of Global Business Final Exam d. (7 pts.) Describe how the Central Bank can implement the change in the nominal interest rate from c.) via Open Markets operations. Describe its impact on the Central Bank's balance sheet. Illustrate the monetary policy response in the AS-AD framework, describing its impact on prices and real output. e. (6 pts.) Describe another monetary policy tool (other than Open Market Operations) that the Central Bank can use to achieve the same impact on the real output and prices. Carefully describes how it will impact the Money Supply (if the policy will affect the Monetary Base and/or money multiplier)