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2. In the following model, m is the log of the money supply, p the log of the price level, y(y) the log of output (equilibrium output), and E, is the rational expectation of x formed with information on period t-1 data: y and m are constants; u, is an i.i.d. error term. (a) Briefly explain each equation. (b) hat is the solution for the price level and output? (c) Does monetary feedback policy affect output in this model? Briefly explain your answer.

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