Question: 1. Given the output and inflation data in the table below and assuming that the economy was in general equilibrium on 10/1/1952. Date Output

1. Given the output and inflation data in the table below and

1. Given the output and inflation data in the table below and assuming that the economy was in general equilibrium on 10/1/1952. Date Output Inflation 10/1/1952 2526.4 1.24 1/1/1953 2573.4 1.19 Billions of chained 2009 USD. *Percent per year. (a) Identify the two types of shocks that could have individually given rise to the inflation and output changes seen on 1/1/1953. Briefly explain the basis for your identification using equations as appropriate. (b) Demonstrate how a policy that focusses solely on inflation stabilization would work using an AD/AS diagram. Your diagrams should show general equilibrium. the shock, the policy response and relaxation to general equilibrium.

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