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Consider policy rule, IS curve, and Philips curve
Policy rule ∶ Rt − ¯r = ¯m(πt − ¯π)
IS curve ∶ ˜Yt = 1/1 − ¯xc [¯a − ¯b(Rt − ¯r)]
Philips curve ∶ πt = πt−1 + ¯ν ˜Yt + ¯o
a. Derive Aggregate Demand(AD) and Aggregate Supply(AS) curve, and draw AD and AS curve. What is the slope and y-intercept for AS and AD curve?
b. Find steady state inflation, π∗, and output ˜Y ∗
c. Suppose there is a positive and temporary demand shock, because of the new technology development. (¯a>0) What is the impact of this shock?
