QuestionConsider a closed economy described by the following set of… Consider a closed economy described by the following set of equations: ? = ?(?, ??, ? – ??, ?) + ?(??, ? – ??, ?),?=?, ? ?(?)?-?? = ?? + ??? =?,?>0Where ? represents cost-push shocks but has a mean of zero, and ?? is the central bank’s inflation target and is equal to some positive constant. Assume the economy is initially at the point ? = ?? and ? = ??.Using graphs and words, analyse the following shocks using the IS-Phillips Curve framework. What must the central bank do in each case to keep i) output and/ or ii) inflation constant?A. Due to a new pipeline with a producing country, there is a sudden and unexpected permanent fall in the price of natural gas (the country at hand is an importing country). Assume inflation expectations are well-anchored so that ?? = ??. (3 points)B. Due to poor weather, there is a sudden and unexpected temporary increase inthe price of most primary agricultural products such as grains and vegetables.Assume inflation expectations are adaptive such that ?? = ? . (4 points) ?+1 ?C. Due to improvements in infrastructure, there is a permanent increase in thenatural level of production. Assume inflation expectations are well-anchoredso that ?? = ??. (3 points) ?+1BusinessEconomicsMacroeconomicsECON Macroecono
solved : QuestionConsider a closed economy described by the following
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