Question: Consider the following dynamic AD-AS model: yt = (mt pt), > 0; (Aggregate demand behavior) t = e t + 1 (yt yn), > 0;

Consider the following dynamic AD-AS model: yt = (mt pt), > 0; (Aggregate demand behavior) t = e t + 1 (yt yn), > 0; (Aggregate Supply Behavior) e t = t1 (static Expectation) A. Let 0 = mt be the growth rate of money supply. Derive the system of difference equations in terms of t and yt . B. Find a steady state, and Draw the phase diagram. C. Suppose that central bank increases growth rate of money supply to 1. Explain the dynamic and steady state effects of monetary

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