Consider the following extended classical economy (in which the misperceptions theory holds):

a. Suppose that the money supply M = 1000 and that the expected price level Pe = 50. What are the short-run equilibrium values of output Y, the price level P, and the unemployment rate u? What are the long-run equilibrium values of these three variables?b. Now suppose that an unanticipated increase raises the nominal money supply to M = 1260. What are the new short-run equilibrium values of output Y, the price level P, and the unemployment rate u? What are the new long-run equilibrium values of these three variables? In general, are your results consistent with an expectations-augmented Phillips curve?

AD SRAS Okun's law Full-employment output Natural unemployment rate 0.06. Y 300 + 10(M/P). Y = 500.