do what you can

3. Dynamic IS-MP-AS: For this exercise you will need to download the spreadsheet IS MP.AS.Q2.xlsx (a) Simulate a supply shock by changing the "bar o cell from zero to one. De- scribe the effect of the supply shock 1 (b) Simulate a demand shock by changing the "baro" cell from one to vero and the "bara" cell from zero to one. Based on the path of output, inflation, and the interest rates is it possible to distinguish a supply shock your answer from part (a)) from a demand shock? Explain. (c) Finally, consider a central bank with a dual mandate i.e. MP: R-rum(-1- *) + Y-1. Assume that i = 0.2. Modify the spreadsheet to reflect this assumption. What is the effect of this change on the prediction for the effect of a demand shock (a = 1)? Explain and include a picture of the dynamics. (Note: 1 do not want the whole spreadsheet, just the picture of the path of output, inflation, and the interest rate.) Sheet1 Sheet2 Sheet3 time Inflation Shocks bara baro 0 1 2 3 4 5 NNNNNNN Parameters barb barm 6 7 8 9 har barpi har 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Output Gap Interest Rates 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2 2 0 2