Consider an economy characterized by the A5 and AD curves in the textbook. Moreover. you can assume 11"_1 = 3?. In addition, fi = 1, 1—3 = 2,771. = 0.5.

Consider an economy characterized by the A5 and AD curves in the textbook. Moreover. you can assume 11"_1 = 3?. In addition, fi = 1, 1—3 = 2,771. = 0.5. If, at time
t, the economyr is hit by an aggregate demand Shock 5 = 0.04 (but no inflation shock), then 1r: i5 ______ percentage points lower than mil. {nt Combine the AS and AD curves, set m_1 = 1’7 and sotve for an algebraically Use the parameter values above to calculate the change in the inflation rate, i.e. 7|} — 7Q_1.

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