Consider a closed economy in steady-state, with an inflation rate of 5% and shortrun output equal to zero. Assume people have adaptive expectations. Suppose there is a positive productivity shock (for example, a shock that suddenly lowers firms' prices).

a) Using the IS/MP and Phillips curve diagrams, show what the effect of this shock is on output and inflation, both in the short-run and long-run (assuming that the central bank keeps the real interest rate constant).

b) Suppose now that the positive productivity shock coincides with a temporary increase in the marginal product of capital. How does this affect your analysis in (a)?