# Forecasting the Effects of Future Shocks Using the ASAD Redux Model --- ### Overview As a Central Bank forecaster, your responsibility includes predicting the impact of potential future economic shocks using the Aggregate Supply-Aggregate Demand (ASAD) Redux model. In this exercise, we focus on predicting outcomes when the economy experiences two consecutive shocks: 1. **Positive Shock on Aggregate Demand**: At time \( t = 1 \), there is a persistent positive shock due to increased desired expenditures (e.g., higher propensity to consume). 2. **Permanent Reduction in Money Supply**: At time \( t = 2 \), the Central Bank enacts a permanent reduction in the money supply. ### Task Description Your goal is to forecast the effects of various magnitudes of monetary contractions. You will run six numerical simulations of the ASAD model, each with different sizes of money supply reduction. However, due to software issues, some of these simulations are incorrect and inconsistent with the theoretical model's predictions. Your task is to identify and eliminate these incorrect scenarios. ### Analysis of Scenarios Below are six scenarios (2.A to 2.F) showcasing the potential impacts on employment (\( N \)) and price level (\( P \)). Your task is to discern which scenarios align with theoretical expectations by interpreting time \( t = 6 \) as the medium run. #### Scenario 2.A - **Employment \( N \)**: A noticeable spike at \( t = 1 \), followed by a gradual adjustment towards the medium run level. - **Price Level \( P \)**: Sharp increase at \( t = 1 \), followed by a decline, stabilizing below initial levels. #### Scenario 2.B - **Employment \( N \)**: Initial spike at \( t = 1 \), followed by leveling off around the pre-shock level. - **Price Level \( P \)**: Initial increase at \( t = 1 \), followed by a smaller, consistent decline, stabilizing slightly below the pre-shock level. #### Scenario 2.C - **Employment \( N \)**: Moderate increase at \( t = 1 \), steady decline, and stabilization below the pre-shock level. - **Price Level \( P \)**: Small increase at \( t = 1 \), consistent decline, and stabilization. #### Scenario 2.D - **Employment \( N \)**: Large spike at \( t = 1 \