Suppose the Economy Is Characterized by the Following Equations

question 72

Essay

Suppose the economy is characterized by the following equations.
IS curve: r = 20.20 - 0.002Y
LM curve: M/P = Y - 250(r + π^e)
SRAS curve: Y = + 100(P - P^e)
The nominal money supply is M = 19,800,expected inflation is π^e = 0.20,and full-employment output is = 10,000.
(a)If the economy begins in general equilibrium,what are the equilibrium values of the price level,output,and the real interest rate?
(b)If the expected price level is the price level you found in part (a),what happens to the price level,output,and the real interest rate in the short run if there's an unanticipated decrease in the nominal money supply 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 expected price level is the price level you found in part (a),what happens to the price level,output,and the real interest rate in the short run if there's an unanticipated increase in the nominal money supply to 24,937.5?