Question 2 DAS-DAD Model [16 points] Dynamic ASAD model. The current recession caused by the COVID19 pandemic has reduced demand for Australian goods. Your task is to understand how this adverse aggregate demand shock affects the Australian economy and the use of monetary policy in stabilizing the economy. You will use the Dynamic Aggregate SupplyAggregate Demand model (developed in Lectures 10, 11 and 12) to analyze this scenario. For simplicity, suppose the natural level of output is constant. Each period in the model lasts a year. Interest rate and ination are expressed in percentage points. The parameter values of the model are provided in Table 2 below. l7 50 gb 0.60 77* 2 91: 1 p 2 6y 0.30 a 1 Table 2: DASDAD model Benchmark Parameter Values (5) Suppose that peeple's expectations of ination are subject to random shocks. That is, instead of being merely adaptive, expected ination in period t, as seen in period t 1, is Et_1(7rt) = 7114 + m4, where 17:4 is a random shock. This shock is normally zero, but it deviates from zero when some event beyond past ination causes expected ination to change. Similarly, Et(7rt+1) = 7n; + m. Derive both the DAD and the DAS equations in this slightly more general model. (3 points)