申論題

3. Consider an economy with the following aggregate demand and aggregate supply functions: Aggregate Demand function:

where Y represents the output, is the potential output, Pe is the price level, Pe is the expected price level, M is the nominal money supply. Furthermore, assume that M = 400 and   = 200.

(B) (7 points) Suppose that the central bank dramatically increases the nominal money supply to 750 while the general public maintains exactly the same expected price level, what would be the new equilibrium price and the new equilibrium output?