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Exercise 3 (form B2) Many economists think that the Coronavirus shock and the associated cities' lockdowns will generate a huge negative demand shock. In this exercise, we analyze the implications of this: Suppose the economy begins in a steady state. Assume that at t = 4, there is a negative demand shock that lasts for one period. Only at period t = 4, we have that a = -10%. Assume that there are no other shocks to the economy (the Coronavirus clearly would imply a supply shock as well, but we will assume there is no supply shock for the exercise). Use the AS/AD framework: 1. Show in a graph the AS and AD curves at t = 4, 5, and 6. 2. Show in the same graph the equilibrium (), 7 )att = 4, 5, and 6. 3. Show in three graphs the plots for: i) a, vst, ii) Y, vst , and iii) Tit vst. 4. Provide intuitions: o (2 points) What is happening at the time of the shock (t=4)? o (2 point) What is happening in the following periods? (1 point) Does the economy go back to the initial steady-state or does it converge to a different one