Disruption to the supply of natural gas to Atlantis has caused a surge in energy prices. While Atlantis has had a period of inflation around 2% for several years, the current rate of inflation is 6%.

1. What type of shock has affected Atlantis and how has it fueled inflation?

2. Explain what is meant by the natural of unemployment and explain why the long-run Phillips curve is vertical at that rate. Why is inflation constant in the long-run equilibrium?

3. Analyze the effect of the shock on Atlantis using short- and long-run Phillips curves. Explain how the Central Bank's willingness to accommodate the shock affects inflation and unemployment in Atlantis.

4. Explain why the credibility of monetary policy is important.