Revisiting the inflation shock (hard): Reread the infation shock example (event

#1) in Section 13.5. Suppose the size of the shock is o0.

(a) In the AS/AD graphs describing the response of the economy to the

infation shock, we labeled the initial response of infation as !1 and

initial output as Y

(b) Now suppose the parameters of the AS and AD curves take the following

values: o0 = 2%, a = 0, b = 1/2, m = 1/2, = 1/2, and ! = 2%. Solve

for the value of short-run output and the infation rate for the frst 3 years

after the shock.