Compose a 1500 words assignment on demand shock in economy. Needs to be plagiarism free!

Compose a 1500 words assignment on demand shock in economy. Needs to be plagiarism free! The movements from A to E represent the reactions of the parameters due to the demand shocks (Mankiw, 2006). At period t+4 since the DAS curve continues to move downwards as a result of the low inflationary pressure in the period t+3. As the negative demand shock that is described in this situation persists the DAD curve returns to its actual position which is DADt-1, t+4, thus the economy moves to point F. Since the DAS curve is lower than it was earlier, so a recovery process will cause the curve to move upwards to point A. This may be due the rise in employment level or an increase in the wage rate by the workers in the economy or a general rise in the output level owning to the inflation prevailing in the economy. Source: Mankiw, 2006 Answer to question 2 As the economy undergoes a demand shock, the central bank responds immediately to combat the ill effects of such a shock. Generally in real case scenario the shock persists for several time periods. A negative demand shock calls for a fall in the output and the inflation level. Therefore the Central bank responds by lowering the level of interest rate. Now as the interest rate falls, so the level of goods as well as services demanded rises. Thus the contractionary effect of demand shock is offset. As the inflation level falls, so does the expected inflation level. As a result of the demand shock the nominal and the real rate of interest falls, however as the shock disappears the interest rate too increases (Mankiw, 2006). From the adaptive expectation rule we have Et (?t+1) = ?t, so Et-1 =?t, or ?t = 2% i.e. 2 The nominal interest rate is given as i= ?t + ? + ?? (?t –?*) + ?y (Yt – Y) i = 1.091+.02+0.5(1.091-0.2) + 0.5 (96.36 – 100) = -0.1745.