Consider the following misperceptions model of the economy.
AD: Y = 600 + 10(M/P)
SRAS: Y = + P - Pe
Okun's Law: (Y - ) / = -2(u - )
Let = 750,= 0.05,M = 600,and Pe = 40.
(a)What is the price level?
(b)Suppose there is an unanticipated increase in the nominal money supply to 800.What is the short-run equilibrium level of output,the unemployment rate,and the price level?
(c)When price expectations adjust fully,what is the price level?

Question

Consider the following misperceptions model of the economy.
AD: Y = 600 + 10(M/P)
SRAS: Y =  + P - Pe  
Okun's Law: (Y -  )  / = -2(u -  )
Let = 750,= 0.05,M = 600,and Pe = 40.
(a)What is the price level?
(b)Suppose there is an unanticipated increase in the nominal money supply to 800.What is the short-run equilibrium level of output,the unemployment rate,and the price level?
(c)When price expectations adjust fully,what is the price level?

Quizplus · Accepted Answer

The Answer of Consider the following misperceptions model of the economy.
AD: Y = 600 + 10(M/P)
SRAS: Y =  + P - Pe  
Okun's Law: (Y -  )  / = -2(u -  )
Let = 750,= 0.05,M = 600,and Pe = 40.
(a)What is the price level?
(b)Suppose there is an unanticipated increase in the nominal money supply to 800.What is the short-run equilibrium level of output,the unemployment rate,and the price level?
(c)When price expectations adjust fully,what is the price level?

Consider the Following Misperceptions Model of the Economy