. . . Bb | |M MM in TR| + E 7 5 6 TOO + C @ File | /Users/anapujols/Downloads/26590592.pdf TOOK. #0 Update : 26590592.pdf 1 / 2 - 100% + 1. The following model describes the economy of the planet Caladan. Assume that Caladan has been in a long run equilibrium for some time. AD: Y =300+10(M SRAS: Y = Y +P-P Okun's Law: Y - Y y -=-2(u -u") Potential output: Y =400 Natural rate of unemployment: u" =0.04 Money supply: M = 90 a. Suppose that the central bank of Caladan increased the nominal money supply to M = 123.6, and this expansionary monetary policy was unanticipated by the public. Please graphically illustrate the impact of this monetary policy shock on P and Y in the short run and long run using the AD-AS model. Then, calculate the short run and long run equilibrium values of Y, P, and u after the shock. Remember to label your graph carefully and explain your answer in detail. b. Now suppose that the central bank announced their intention to increase the money supply well in advance of the actual policy move. How would that change your answers to part a above? Please explain your response in detail, use graphical analysis to support your answer if necessary. 2. The economy of the planet Arrakis can be described by the following equations: AD: Y = 4000 +2(M/P) SRAS: Y = Y +100(P -P) Okun's Law: (Y -Y)/Y =-2(u -u") 1. . . Bb | |M M M in TR| $ 7 5 6 to + C @ File | /Users/anapujols/Downloads/26590592.pdf Update : 26590592.pdf 2 / 2 1 - 100% + In this economy full-employment output Y equals 6000 and the natural unemployment rate u" equals 0.05. a. Suppose that the nominal money supply has long been constant at M = 4000 and is expected by the public to remain constant forever. What are the equilibrium values of the price level P, the expected price level P, expected inflation a, output Y, and the unemployment rate u? b. A totally unexpected increase in the money supply occurs, raising it from 4000 to 4488. What are the short-run equilibrium values of the price level, expected price level, output, and unemployment rate? What are the values of cyclical unemployment (u - u") and unanticipated inflation? [HINT: You'll need to use information on P and P to calculate unanticipated inflation] c. What is the slope of the expectations-augmented Phillips curve in this economy? [HINT: use the unanticipated inflation and cyclical unemployment you calculated in part b to help you out here]