Consider a dynamic AS-AD model. The dynamic aggregate supply curve is given by Ty = Tt-1 + 0.5(Y, 100) + V And the dynamic aggregate demand curve is given by Y = 100 0.5(T; 2), where Y, denotes output level and T, denotes inflation rate in percentage terms. Ut captures a supply shock. (a) [2 points] Calculate the long-run equilibrium values for output and inflation. Suppose the economy is in the long-run equilibrium you computed in part (a). Suppose that at tim t = 0 there is an adverse supply shock vo = 5 that lasts for two periods before reverting to zero. That is, Vo = V1 = 5 and 0 = 0 for all subsequent t > 2. (b) [3 points] Compute the values of output and inflation in period t = 0) upon impact. What does this imply for the nominal and real interest rates in period t = 0? Explain how the actual inflation rate you find compares to the inflation rate that would have prevailed if there was no monetary policy reaction to inflation. (c) [3 points] Compute the values of output and inflation in period t = 1. Explain how expected inflation in period t = 1 compares to expected inflation in period t = 0. What role does expecte inflation play in determining output and inflation in period t = 1? (d) [2 points] Explain qualitatively the subsequent time paths of output and inflation after the adverse supply shock ends (for t > 2). Does inflation return to its long run equilibrium value in period t = 2? Why or why not