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Consider the role of different frictions in explaining why monetary policy shocks have real effects. Suppose Om = 0 instead of Om > 0 and

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Consider the role of different frictions in explaining why monetary policy shocks have real effects. Suppose Om = 0 instead of Om > 0 and consider a one-unit aggregate demand shock such that pi - Elp] = 1, show that y is higher for the Lucas economy than for the imperfect competition economy. Explain why. (2 points)

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