please show your work clearly.

, i Chrome File Edit View History Bookmarks People Tab Window Help . O . 6 MyAcaden X l G: Files X 9 Problems x (0: Files x | ..|| Econ182[ x | m ECON136 x 3 one usd in x | H 221mm: x l u Homework x l 0 (2) Facebo x | + 6 9 C' 0 File I [Users/jungtaekchoi/Downloads/Problem%20$et%204.pdf :55 Apps M Gmail YouTube '1 Maps Problem Set 4,pdf 169". Q Translate 6 Assignment 7 M... e FELLEZS Silenced... a 05 61A (137 unrea... Problem 3. Forward Guidance and Average Ination Targeting On Aug 27, 2020, the Fed Chair Mr. Jerome Powell announced a major policy shift to \"average ination targeting,\" which allows price pressures to overshoot after periods of weakness so that ination would average 2% over time. This question investigates a potential scenario under this new policy approach. Suppose at time t, the Fed announces that it will increase money supply at T for a prolonged period of time until the average ination target of 2% has been achieved. The prolonged nature of the shock can make us consider the increase in money supply at T as a permanent shock. In other words, a permanent increase in money supply at T is announced, and expected, at t, but the actual money supply will remain unchanged from t to T until the permanent increase occurs at T. In addition, since we have not yet covered how output can adjust to such shock in detail, we will make a simplication assumption for now that the output is given and remains constant throughout this question. Given the above situation, explain how money supply, nominal and real interest rates, price level, and exchange rate would behave since t until their adjustments to the new equilibrium. Present a two-sided diagram and trace the time paths of the variables to illustrate your answer. Note that: 1) You can assume there is no change in foreign monetary policy and the exchange rate is USD against another foreign currency. 2) You can also assume prices are sticky at both time t and T. That is, prices can only gradually adjust over time when a shock happens. 'ilh'g DWQQE aamaus