Consider the Following Misperceptions Model of the Economy

question 3

Essay

Consider the following misperceptions model of the economy.
AD: Y = 600 + 10(M/P)
SRAS: Y = + P - P^e
Okun's Law: (Y - )/ = -2(u - )
Let = 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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Definitions:

Traditional Methods

Conventional or long-established techniques or practices used in a particular field or profession.

Inference

The process of drawing logical conclusions from premises or evidence.

Bootstrap Confidence Interval

A statistical method for estimating the confidence interval of a parameter by resampling the original data with replacement.

Bootstrap Distribution

The distribution of a large number of bootstrap samples' statistics, used for estimating the shape of the true distribution of a statistic.