Question
Suppose the economy is characterized by the following equations. IS curve: r = 20 . 200 . 002 Y LM curve: M/P = Y 250(
Suppose the economy is characterized by the following equations.
IS curve: r = 20.200.002Y
LM curve: M/P = Y250(r + e)
SRAS curve: Y = +100(P-Pe)
The nominal Ms = 19, 800, e = 0.20, and Y= 10, 000.
a.If the economy begins in general equilibrium, what are the equilibrium values of the
P, Y , and r?.
b.If the P e is the P you found in part (a), what happens to the P, Y, and r? in the short run if there's an unanticipated decrease in the nominal Ms to 14,737.5? Hint: guess some price levels that differ from the one you found in part (a) by increments of 0.25.
c.If the P e is the P you found in part (a), what happens to the P, Y, and r in the short run if there's an unanticipated increase in the nominal money supply to 24,937.5?
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