Unformatted text preview: An economy is described by the following equations: AD Y = 4000 + 2 & M P ± SRAS Y = Y + 100( P & P e ) Okun±s law ( Y & Y ) Y = & 2 ( u & u ) In this economy full employment output equals Y = 6000 and the natural unemployment rate u equals : 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 e , expected in&ation & e , 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 shortrun equilibrium values of the price level, expected price level, output, and unemployment rate? What are the values of cyclical unemployment and unanticipated in&ation? (c) What is the slope of the expectationsaugmented Phillips curve (equal to & h in Eq. 12.1) in this economy? 1...
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This note was uploaded on 03/10/2010 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell.
 Spring '07
 MBIEKOP
 Macroeconomics, Phillips Curve

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