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2. (20 points) The 1981-32 recession was preceded by a sharp decrease in the nominal money supply. (a) (8 points] First, let's analyze this event

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2. (20 points) The 1981-32 recession was preceded by a sharp decrease in the nominal money supply. (a) (8 points] First, let's analyze this event from a real business cycle perspective and assume that the classical dichotomy applies. Using the intertemporal model, show graphically how a decrease in the nominal money supply would affect output, employment, real wages, the real interest rate and the price level. What happens to consumption and investment? (b) (10 points} Next, let's analyze this event from a Keynesian perspective. Using the sticky price version of the Keynesian model, show graphically how a decrease in the nominal money supply would affect output, employment, real wages, the real interest rate and the price level. What happens to consumption and investment? Your answers should be for the short run, with the price level held xed. (c) (2 points} Under which perspective, the classical or Keynesian, is it more plausible to conclude that the 1981-82 recession was caused by a money supply decrease? Briey explain

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