AS and AD shocks and monetary policy in the traditional Keynesian model. The years after Covid...

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AS and AD shocks and monetary policy in the traditional Keynesian model. The years after Covid have been characterized by a heated discussion over whether the recent bout of inflation was caused by AD shocks (excessively easy and untimely fiscal and monetary policies) or because of AS shocks (dislocations, plant shutdowns, energy, labor supply, etc). The discussion is/was of crucial importance because the optimal policy response would be different. Use the traditional Keynesian Model and discuss what you think is the optimal monetary policy response if the economy faces a: a) Large temporary Fiscal Policy Expansion (positive ey). b) Large temporary Productivity Shock (Negative En) Assume the economy is best described by: IS: yt = yp - Shrt - r*ň + eytt t MP: rt = r* + ňon - 1лt - л* + eu t t AS: nt = Et-1nt + ynyt -ypn - en You can use simple math or graphs to show your analysis. AS and AD shocks and monetary policy in the traditional Keynesian model. The years after Covid have been characterized by a heated discussion over whether the recent bout of inflation was caused by AD shocks (excessively easy and untimely fiscal and monetary policies) or because of AS shocks (dislocations, plant shutdowns, energy, labor supply, etc). The discussion is/was of crucial importance because the optimal policy response would be different. Use the traditional Keynesian Model and discuss what you think is the optimal monetary policy response if the economy faces a: a) Large temporary Fiscal Policy Expansion (positive ey). b) Large temporary Productivity Shock (Negative En) Assume the economy is best described by: IS: yt = yp - Shrt - r*ň + eytt t MP: rt = r* + ňon - 1лt - л* + eu t t AS: nt = Et-1nt + ynyt -ypn - en You can use simple math or graphs to show your analysis.

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Scenario a Large Temporary Fiscal Policy Expansion The initial impact of a large temporary fiscal policy expansion on the IS curve is shown in the graph below IS Curve The IS curve shifts from IS to I... View the full answer