a).To illustrate that shock, use AE/PC Model (carefully labeled!!) without time lags (use the AE and PC graphs similarly to the textbook, place PC graph below AE graph). For your analysis, choose as a starting point (marked A) an economy operating at potential GDP (Y=Y*) and at its inflation target ( =

^!). Also, show point B where the economy is situated after the shock but prior to any central bank policy response. There should be A and B on BOTH the upper (AE graph) and lower (PC graph) graphs. If points A and B are the same point, then just mark that point with both A and B. Mark initial curves with the superscript 1, like AE¹ and PC¹, and every subsequent shift with a higher number, like the second shift would be AE² and PC², and the third shift (if necessarily) would be AE³ and PC³ and so on.