Problem 1. Suppose the economy is given by the following: Consumption function: C= 26 + 0.6(Yd) Investment function: I= 23 -5|]r Government spending: G = III] Tax collections: T = 1'!) Exports schedule: X= 6- E Imports schedule: (M) = 2 + 36 Money supply: M = 492 Nominal Money demand L(Y)= SY-Sr Price level=1 Labor supply=50 Production Jnction=2N i) Suppose now that the Fed decides to decrease M to 400 (assume G is 10). Compute the new equilibrium levels of output, and exchange rates. j) Graph and explain the adjustment of the economy to this money supply shock in the longer run once prices and wages start adjusting