This question asks you to think about the effects of a temporary increase in government transfers (so that the increase lasts for less than a year). You may ignore the future tax implications of the transfer increase.

a. Use graphs to demonstrate what happens to the IS and AD curves, both today and over time, as result of this shock. If the Fed doesn't shift the MP curve, how do output and inflation evolve over time? Using graphs, explain your answers and assumptions fully.

b. Now suppose that the Fed does shift the MP curve upward temporarily. Given this adjustment by the Fed, how does your answer to part (a) change, if at all? Using graphs, explain your answers and assumptions fully.