The country of Westeros has the following AD and AS curves; AD: Y=5 - 2T AS : T = 2 +0.2[(Y-1 1)/1] (Note that inflation depends on last period's output gap and consequently not on the current level of Y. This means the aggregate supply curve is horizontal in the short-run.) a. Calculate the value of inflation and output in long-run equilibrium. (Hint: Yes this is very easy.) (Y = 1 and = 2) Suppose a positive shock to aggregate demand permanently increases the intercept term in the AD curve from 5 to 10. b. Calculate the values of inflation and output at the initial short-run equilibrium. (Short-run output is Y = 6 and inflation is = 2.) - c. Calculate the values of inflation and output in the period after the shock to the AD curve. You need to calculate Y+ and +1. (+1 3 and Y+1 = +1 d. Calculate the value of inflation and output in the new long-run equilibrium. (In the long-run we need output to equal potential output, so we get Y = 1 and = 4.5). = - 4)