Consider the Following Misperceptions Model of the Economy $\bar{\gamma}$

question 35

Essay

Consider the following misperceptions model of the economy.
AD: Y = 600 + 10(M/P)
SRAS: Y = $\bar{\gamma}$ + P - P^e
$\bar{\gamma}$
Okun's Law: (Y - $\bar{\gamma}$ )/ $\bar{\gamma}$ = -2(u - $\bar u$ )
Let $\bar{\gamma}$ = 750,= 0.05,M = 600,and P^e = 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?

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