Consider a monetary model that can be described by the following system of equations: MtdMtYtit=PtL(it,Yt)=(1+)tM=Y=R+t, where Mtd denotes money demand, Mt denotes the money supply, Pt denotes the price level, it denotes the nominal interest rate, Yt denotes output, and t denotes inflation. Note that is a positive parameter, whilst M,Y, and R are all exogenous variables. a) Explain what economists mean by the "classical dichotomy". Does the above model reflect the classical dichotomy? [8 marks] b) Solve the above model to obtain expressions for all endogenous variables in terms of exogenous variables and parameters. [5 marks] c) Using appropriate diagrams, analyse the dynamic behaviour of the nominal interest rate, the real money supply, and the price level in response to a permanent decrease in the real interest rate. Consider a monetary model that can be described by the following system of equations: MtdMtYtit=PtL(it,Yt)=(1+)tM=Y=R+t, where Mtd denotes money demand, Mt denotes the money supply, Pt denotes the price level, it denotes the nominal interest rate, Yt denotes output, and t denotes inflation. Note that is a positive parameter, whilst M,Y, and R are all exogenous variables. a) Explain what economists mean by the "classical dichotomy". Does the above model reflect the classical dichotomy? [8 marks] b) Solve the above model to obtain expressions for all endogenous variables in terms of exogenous variables and parameters. [5 marks] c) Using appropriate diagrams, analyse the dynamic behaviour of the nominal interest rate, the real money supply, and the price level in response to a permanent decrease in the real interest rate