Consider the following misperceptions model of the economy.AD: Y = 600 + 10(M/P)SRAS: Y = 
+ P - PeOkun's Law: (Y - 
)/ 
= -2(u - 
)Let 
= 750, = 0.05, M = 600, and Pe = 40.(a)What is the price level?(b)Suppose there is an unanticipated increase in the nominal money
supply to 800. What is the short-run equilibrium level of output, the unemployment rate, and the price level?(c)When price expectations adjust fully, what is the price level?
What will be an ideal response?
| (a) | 40 |
| (b) | Y = 760, u = .0433, P = 50 |
| (c) | P = 53 1/3 |
Economics
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