Dynamic ASAD model. The recent fall in consumer condence and business condence have made the demand for Australian goods decrease for several years. Your task is to understand how this adverse aggregate demand shock affects the Australian economy and the use of monetary policy in stabilising the economy. For simplicity, suppose the natural level of output is constant. Each period lasts a year. Interest rates and ination are expressed in percentage points. The parameter values are given in Table 2. 17 50 05 0.60 7T* 2 l9,r 1 p 2 0y 0.20 oz 1 Table 2: DASDAD model , Benchmark Parameter Values (1) Y1 =50,7l't 22,7} =2,andit =4 (2) 1r1 = 1.333,Y1 = 48.889,r1 = 111,121 2 2.444 (3) Utilizing the process that we explain in part (2) and a spreadsheet program, we can iteratively determine for inflation 7\" for each of t = 1' " 50 _ =0: beginning from 71-0 _ Ti" and then recover output, the real and nominal interest rates. The conclusions from these estimates are plotted in the figure. (1) (2) (3) Using the parameter values in Table 2, calculate the medium-run equilibrium values of ination, output and the nominal and real interest rates. (1 point) Suppose the economy was initially in its medium run equilibrium. At year t : 1 the economy was hit by a persistent adverse aggregate demand shock 5