A closed economy has the following AD and AS curves: AD curve Y = 300 + 30(M/P)

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A closed economy has the following AD and AS curves: 

AD curve Y = 300 + 30(M/P) 

AS curve Y = Y + 10(P + Pe ) 

Here, Y̅ = 500 and M = 400. 

a. Suppose that Pe = 60. What are the equilibrium values of the price level P and output Y? (The solutions for P in this part and in part (b) are multiples of 10.) 

b. An unanticipated increase raises the money supply to M = 700. Because the increase is unanticipated, Pe remains at 60. What are the equilibrium values of the price level P and output Y? 

c. The Bank of Canada announces that the money supply will be increased to M = 700, which the public believes. Now what are the equilibrium values of the price level P, the expected price level Pe, and output Y?

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Macroeconomics

ISBN: 978-0134646350

8th Canadian Edition

Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone

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