give explanation

Consider an economy which is initially in longrun equilibrium. Due to an unexpected political crisis, rms reduce their investment spending. a) Explain how the decline in investment spending aects the AD curve. (4 points) b) If the Reserve Bank does not change its monetary policy rule (that is, it con tinues to follow its existing policy rule), how will it react to the decline in investment spending? Use an ADAS diagram to illustrate and explain your answer. (4 points) 0) Now, in addition to the decline in investment spending, suppose that the econ- omy experiences an adverse ination shock. (i) Explain how the adverse ination shock affects the SRAS line. (4 points) (ii) Discuss, using the AD-AS diagrams, What choices the Reserve Bank now must make regarding monetary policy. (4 points)