Problem 4: Short run and long run economic analysis (10 points) Assume that the economy experiences a negative permanent supply shock i) Use the AD/AS diagram to illustrate what happens to the ination rate and the aggregate output in the short run when the monetary authority responds to this shock by changing monetary policy in order to stabilize ination. Assume, for the sake of your graph, that the economy begins in the longr run equilibrium, where the ination rate equals the target ination rate and the output equals the potential output. Draw and label your graphs carefully. ii) Does the divine coincidence hold true in this case