Suppose: LRAS: Y=20 AS: Y=2+0.5 IS: Y =10-r MP: r = -5+ as long as i...

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Suppose: LRAS: Y=20 AS: Y=2+0.5π IS: Y =10-r MP: r = -5+π as long as i 20 adaptive inflation expectations a) Derive and draw the AD curve - where is the "kink" located? (give Y, coordinates) b) Suppose there is a positive demand shock, now IS is Y=15-r - how does the AD curve shift? - where is the new "kink" located? (give Y, coordinates) c) Suppose there is autonomous tightening, now MP is r =-1+π for i 20 - how does the AD curve shift? where is the new "kink" located? (give Y, coordinates) (This is the only information provided) Suppose: LRAS: Y=20 AS: Y=2+0.5π IS: Y =10-r MP: r = -5+π as long as i 20 adaptive inflation expectations a) Derive and draw the AD curve - where is the "kink" located? (give Y, coordinates) b) Suppose there is a positive demand shock, now IS is Y=15-r - how does the AD curve shift? - where is the new "kink" located? (give Y, coordinates) c) Suppose there is autonomous tightening, now MP is r =-1+π for i 20 - how does the AD curve shift? where is the new "kink" located? (give Y, coordinates) (This is the only information provided)

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a To derive and draw the AD curve we need to find the equilibrium values of output Y and the nominal interest rate i To find the equilibrium values we ... View the full answer