Instructions:

1. with the assistance of the articles linked below, use that information for answering question 1a.

2. with explaining question 1b I need the Use the multiplier AD model and Phillips curve diagram handrawn and labelled.

the rest of the instructions are included in the questions below with all relevant info.

Q- The recent monetary policy response in the US to a positive shock

Consider the recent monetary policy response in the world's largest economy, the United States. It has become evident that the Federal Reserve is serious about reducing the annual rate of inflation which was 8.2% in September of 2022. Raising the US cash rate quite sharply can be an effective tool at reducing inflation, but this has implications for other advanced economies such as Australia - as pointed out in the followingarticles listed in chronological order:

• Pupazzoni, Rachel (2022) 'TheAussie dollar is dropping against the US currency, but it's not all bad news', ABC News, October 5th, available:https://www.abc.net.au/news/2022-10-05/usd-aud-exchange-rate/101492848
• Smialek, Jeanna (2022) 'Inflation Is Unrelenting, Bad News for the Fed and White House', New York Times, October 14th, available:https://www.nytimes.com/2022/10/13/business/economy/high-inflation.html

1a). Comment on the changes in the Australian dollar as the Reserve Bank of Australia (RBA) has followed suit in raising, albeit not as aggressively as the US, its own cash rate. In your answer, provide some data for both countries of the change in the cash rate and the exchange rate (expressed in AUD terms) for two points in time: late-March 2022 and late-October 2022.

1b). Use the multiplier AD model and Phillips curve diagram to illustrate and explain in detail how the aggregate demand function in the US economy is expected to shift in a year from now as the Federal Reserve aims to keep long-term inflationary expectations low. In your answer, elaborate in words (no additional figure required) on the different ways in which US households (more vs. less credit-constrained) are expected to respond to such contractionary monetary policy.