12.3. Assume, as in Problem 12.2, that prices are completely unresponsive to unanticipated monetary shocks for one period and completely flexible thereafter. Assume also that y = c - ar and m - p = b + hy - ki hold each period. Suppose, however, that the money supply follows a random walk: my = my-1 + up, where u, is a mean-zero, serially uncorrelated disturbance. (@) Let Er denote expectations as of period t. Explain why, for any t, Et [Et+1 [pt+2] -pi+1] =0, and thus why Emil - Epi+1 = b + hyd - kid, where y" and yo are the flexible-price levels of y and r. (b) Use the result in part (a) to solve for yt: Pt. it: and r in terms of my-1 and ut 653 (c) Does the Fisher effect hold in this economy? That is, are changes in expected inflation reflected one-for-one in the nominal interest rate