Chapter 12& 13: Double shock! 5) Assume no time lags. Election-related political turmoil roil the U.S. while a global pandemic destabilizes world trade. Together they result in a one-period adverse spending shock. The repercussions are felt globally causing exchange rates in developing countries to strongly depreciate. The prices of imported goods in the U.S. would fall except for the imposition of tariffs, so the net effect is that the U.S. economy experiences a one-period adverse supply shock, also felt in 2020. Call the initial pre-shock point: A; and call the after-shock point: B. I should see points A and B in both graphs on the left (both labeled carefully). Illustrate the shock described using the AE/PC model without time lags (use the AE and PC graphs similarly to the textbook). For your analysis, choose as a starting point an economy operating at potential GDP and at its inflation target. Describe the appropriate Fed response if it is following non-accommodation monetary policy. The response should start with point B as earlier shown. Introduce point C to show the intervention (in 2020), and point D to indicate the final outcome of the intervention. SHOCK RESPONSE6] Ch.13: Show the same double-shock and policy response but now with lags. IIT=2% 2019 2020 2021 2022 2023