Dynamic AS-AD model. The recent fall in consumer confidence and business confidence 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. )7 50 0.60 7r* 2 9\" 1 p 2 93/ 0.20 a 1 Table 2: DASDAD model Benchmark Parameter Values