Question: Please solve, thanks. Consider the following simplified Rational Expectations .r' Neoclassical-Monetarist version of the Keynesian model we all learned in intro or intermediate macroeconomics, which

 Please solve, thanks. Consider the following simplified Rational Expectations .r' Neoclassical-Monetarist

Please solve, thanks.

version of the Keynesian model we all learned in intro or intermediate

Consider the following simplified Rational Expectations .r' Neoclassical-Monetarist version of the Keynesian model we all learned in intro or intermediate macroeconomics, which is from Robert Lucas: Ys=Y*+o((P-Pe}whererx=~0 Yd = M P + v Y5 = Yd Ys is actual output or GDP, and Y\" is the full employment level of output, while P and Fe. which are the actual and expected price levels, and M is the supply of money, which is determined by the government The coefficient, 0:, represents the responsiveness of actual economic activity {Vs} to changes in the difference between actual and expected prices [or the responsiveness of output to changes in labour supply that are brought about by wrong expectations by the public about inflation). There are two agents in this model the government and the public. Both are rational. Government knows people do not want to be fooled out of their money with inflation {or any other way], and the public knows that to get re-elected, it really helps the government to have a booming economy. it is assumed that the public {a single representative agent} knows the value of DE. NB: As people are rational, they use all available information to form expectations about the price level. Expected monetary growth, Me, would feature prominently in public expectations about inflation. Question: in this theoretical construct, what is the only way the government can generate a higher level of output higher than the full employment level of output? In your answer, you have to solve for Fe, F' and [Y5 1"}. The grade here comes in

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