Suppose the economy in question adhered to a standard Classical model. What is the impact of this shock upon the economy?
A local monetary policy maker increases the money supply.
a) Suppose the economy in question adhered to a standard Classical model. What is the impact of this shock upon the economy? Provide graphs and discussion. Be sure to highlight the impact upon, W, P, W/P, N, Y, PrS, PuS, S, Y. Also discuss the long run impact of this shock.
b) Suppose the economy in question adhered to a standard Keynesian model with partially sticky prices. What is the impact of this shock upon the economy? Provide graphs and discussion. Be sure to highlight the short run effects upon r, Y, P, I. Also discuss the long run impact of this shock.