Question: Question 3. Consider the AS-AD model we developed in the class. suppose that there is a inflation shock, i.e. inflation increases unexpectedly. a) What is

Question 3. Consider the AS-AD model we developed in the class. suppose that there is a inflation shock, i.e. inflation increases unexpectedly. a)

What is the impact on economy? What happens in the short-run and

in the long-run if the central bank does not take any action.

Question 3. Consider the AS-AD model we developed in the class. suppose that there is a inflation shock, i.e. inflation increases unexpectedly. a) What is the impact on economy? What happens in the short-run and in the long-run if the central bank does not take any action. Whap happens alongthe transition path? b) Suppose the central bank wants to recover inflation rate. What should it do? c) Suppose the central bank wants to recover output. What should it do

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