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Question 2: Demand shocks, inflation and monetary policy Assume that the economy starts from the medium-run equilibrium (where Y=Yn) and consider the following scenarios. In this question, you don't need to explain and you're not required to show a graph. But, when you're not sure of the answer, don't guess - instead, use the IS-LM-PC model to help you. b. An increase in government spending. What happens to inflation over time if inflationary expectations are anchored? ii What does the central bank need to do to return to the medium-run equilibrium? c. In March 2020 consumer spending dropped sharply as Covid started spreading in the U.S. What happens to inflation over time if inflationary expectations are anchored? ii What does the central bank need to do to return to the medium-run equilibrium