Question $2$: AD$-$AS

$($a$)$ Assume that technology improves such that there is a negative shock to the price at which goods are supplied in Jamaica. Use a carefuily labeled diagram consisting of a long$-$run aggregate supply curve $($LRAS$),$ a short$-$run aggregate supply curve $($SRAS$),$ and an aggregate demand curve $($AD$)$ to illustrate the effect of this positive supply shock in the short run and the long run. Please explain the process from the short run to the long run.

$(6$ marks$)$

$($b$)$ To possibly minimize the effects of the shock, assume that instead of allowing the market to adjust on its own, the government decides to use monetary policy as a stabilization tool. Use a carefully labeled diagram to illustrate the effect of the shock from part $($a$)$ incorporating the government's policy decision.

$(6$ marks$)$

$($c$)$ Is it better if the government intervenes in the market to accommodate such shocks or is it better to allow the market to adjust on its own?

$(2$ marks$)$

$($d$)$ What if instead of the negative supply shock, there was a positive demand shock? Use a carefully labeled diagram to illustrate the effect of this shock in the short and long run assuming no government intervention. $(6$ marks$)$ Show all workings and graphs