Consider the AD-AS (Aggregate Demand-Aggregate Supply) model in a closed economy. The economy is characterized by the following equations: • AD= C+I+G where AD is aggregate demand (or aggregate expenditures), C is aggregat consumption, I is aggregate investment, G is government expenditures. •C=C+mpc. YD and YD-Y-T where C is autonomous consumption expenditures, mpc is th marginal propensity to consume, Yo is the disposable income, Y is aggregate output (or aggregat income), T is the taxes. • I-I-d.r where I is autonomous investment, d is a parameter that reflects the responsiveness o investment to the real interest rate, r is the real interest rate. ⚫ G=gy and T=tY where g and t (tax rate) are parameters between 0 and 1. • r=+λ.π where is the autonomous component of the real interest rate, λ is a parameter tha reflects the responsiveness of the real interest rate to the inflation rate. • π=π² +у(Y-YP) + p where л is the expected inflation rate, y is a parameter that reflects the sensitivity of inflation to the output gap, YP is the potential output, p is the inflation shock. ⚫ Assume that initially the economy is at the equilibrium with the level of aggregate output, th inflation rate and the interest rate being at YP, to and ro, respectively g. Assume that the government and/or the central bank applied a combination of economic policies which insisted on keeping the output above its potential level for a sufficiently long period and finally decided to give up this policy. The economic actors have completely adaptative expectations about the future inflation rate. What is the impact of this policy on the equilibrium values of Y and in the short run and the long run? Explain it using a graphic and sentences. Write the equations for the SRAS for two consecutive periods (for 1 and 1+1). (17 points)