1. Explain how the economy responds to a temporary demand shock using the AS/AD model. Use a graph and equations to expl

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1. Explain how the economy responds to a temporary demand shock
using the AS/AD model. Use a graph and equations to explain how the
shock affects the economy if there is no change in the monetary
policy rule. Next, explain how the central bank can stabilize
output and inflation when there is a shock to demand.
2. Use the AS/AD model to work through the effects of an
inflation shock. Show and explain
how the economy responds at first to the shock and then adjusts
back to the steady state over time using the model.