4. An economy has the following AD and AS curves. AD curve Y = 300 + 30(M/P). AS curve Y = Y + 10(P - Pe ). Here, Y = 500 and M = 400.

a. Suppose that Pe = 60. What are the equilibrium values of the price level, P, and output, Y? (Hint: 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 Fed 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?