This question asks you to think about the effects of a 10% increase in government purchases.

1) Suppose that the increase is expected to be only temporary (that is, it starts today but lasts for only one year). 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.