For the next two questions, use the following general specification of the AD and AS curves: AD: IS Y = - 2(R-7) where F = 0.02 MPR RI - P=2(1 7) where target inflation = = 0.02 Financial friction: R=RII + AS: = + Assume =0. Assume inflationary expectations are adaptive so that = 14-1 Assume the economy is at an initial long-run equilibrium where y = 0 and 7 = 7. The economy experiences an financial shock so that j = 0.06 in both time period 1 and 2. What is the percent value of short-run output and inflation in time period 1? a. Inflation is 4.40 b. Inflation is -0.40 c. Short-run output is -2.40. od. Short-run output is - 1.20 e. Short-run output is 2.40 f. Inflation is 0.80 The economy experiences an financial shock so that f = 0.07 in time period 1 and 2. What is the value of short-run output and inflation in time period 2? a. Short-run output is -0.28 b. Inflation is 1.30 c. Short-run output is 0.56 d. Inflation is 4.80 e. Short-run output is -0.56 f. Inflation is -1.36 For the next two questions, use the following general specification of the AD and AS curves: AD: IS Y = - 2(R-7) where F = 0.02 MPR RI - P=2(1 7) where target inflation = = 0.02 Financial friction: R=RII + AS: = + Assume =0. Assume inflationary expectations are adaptive so that = 14-1 Assume the economy is at an initial long-run equilibrium where y = 0 and 7 = 7. The economy experiences an financial shock so that j = 0.06 in both time period 1 and 2. What is the percent value of short-run output and inflation in time period 1? a. Inflation is 4.40 b. Inflation is -0.40 c. Short-run output is -2.40. od. Short-run output is - 1.20 e. Short-run output is 2.40 f. Inflation is 0.80 The economy experiences an financial shock so that f = 0.07 in time period 1 and 2. What is the value of short-run output and inflation in time period 2? a. Short-run output is -0.28 b. Inflation is 1.30 c. Short-run output is 0.56 d. Inflation is 4.80 e. Short-run output is -0.56 f. Inflation is -1.36