Suppose the European and Japanese economies have a recession and reduce their demand for U.S. goods for several years.

1. (a)Using the AS/AD framework, explain the macroeconomic consequences of this shock, both immediately and over time.
2. (b)Suppose the parameters of the AS and AD curves take the following values:

bar= 2 %,bar= 1 / 2,bar= 1,bar= 1 / 2,bar= 3 %

Solve for the values of short-run output and the inflation rate for the first 3 years after the shock. For this problem, assume the aggregate demand shock lasts for more than 3 years. Comment on your results.