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

a. Suppose that p e == 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, p e 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?