How to do (b), (c) and (d)?

Question 4 The country of Westeros has the following AD and AS curves; AD : Y =5 - 27 AS : 7 = 2 + 0.2[(Y_1 -1)/1] (Note that inflation depends on last period's output gap and consequently not on the current level of Y. This means the aggregate supply curve is horizontal in the short-run.) (a) Calculate the value of inflation and output in long-run equilibrium. (Hint: Yes this is very easy.) (Y = 1 and 7 = 2) Suppose a positive shock to aggregate demand permanently increases the intercept term in the AD curve from 5 to 10. (b) Calculate the values of inflation and output at the initial short-run equilibrium. (Short-run output is Y = 6 and inflation is 7 = 2.) (c) Calculate the values of inflation and output in the period after the shock to the AD curve. You need to calculate Y+1 and 7+1. (7+1 = 3 and Y+1 = 4) (d) Calculate the value of inflation and output in the new long-run equilibrium. (In the long-run we need output to equal potential output, so we get Y = 1 and 7 = 4.5)