You can repeat question 4 for disinflation. (Q4: Use the AS/AD model to work through the effects of an inflation shock.

[answerhappygod]

You can repeat question 4 for disinflation. (Q4: 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.) Explain what happens when
the central
bank wants to reduce steady-state inflation. Explain why the
economy must forgo output to
reduce the inflation rate with adaptive expectations.

What do we mean by rational expectations? How can rational
expectations affect the costs of disinflation? How can central bank
credibility increase the effectiveness of monetary policy for
stabilizing inflation and output?