An economy has the following aggregate supply and demand equations: ADY=300+30(M/P) ASY=Ybar+10(P-Pe ) Ybar=500 and M=400.

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

b. Suppose there is an unanticipated increase in the money supply to M=700. Show this graphically and calculate the equilibrium values of the price level, P, and output, Y.

c. Instead suppose that the Fed announces they will increase the money supply to M=700, which the public fully believes. Show this graphically and calculate the equilibrium values of the price level, P, and output, Y.