The dynamic aggregate demand curve is given by: Y, = Y" - ( IT, - IT ) + E, The dynamic aggregate supply curve is given by (inflation expectations are backward looking): 1, = M+= ( Y, - Y' )+v. The economy was in equilibrium and the rate of inflation was on target level when a negative supply shock hit the economy, v/ 6. The shock was short lived, that is from t+1 onwards v=0. a) Suppose that in response to a negative supply shock the government implements a policy aimed at maintaining output at the potential level. Calculate the change in aggregate spending in period t necessary to achieve this objective. b) Suppose that, in response to a negative supply shock, the government implements a policy aimed at keeping inflation on target. Calculate the change in aggregate spending in period t necessary to achieve this objective