Assume no time lags. Political turmoil in the us leads to a noneperiod adverse spending shock in 2018. The repercussions are feltglobally causing exchange rate in developing countries to strongdepreciate. The prices of imported goods in the us would fallexcept for the imposition of tariffs so the us economy experiencesa one period adverse supply shock also felt in 2018. Call theinitial pre shock point a and call the after shock point B. Ishould see points a and b I both graphs on the left ( both labelledcarefully). Illustrate the shock described using the AE/PC modelwithout time lags. ( Use the AE PC graph similarly to thetextbooks). For your analysis, chose as a starting point, andeconomy operating at potential GDP and at its inflation target.Describe the appropriate feds response by following if it isfollowing non accommodative monetary policy. The response shouldstart with point b as earlier shown. Introduce point c to show theintervention ( in 2018 ) and point d to indicate the final outcomeof the intervention.
Shock ( twographs) RESPOSE
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