Answer each of the following questions. Answers should typically be no more than 2-3 sentences in length.
1. In the long-run model, what assumption about the demand for real money balances ensures that the velocity of money V is constant? Be sure to explain why this is the case.
2.When discussing the Quantity Theory of Money, we concluded that the nominal money supply M determined nominal GDP. Explain exactly what we meant by this.
3. In the simple formulation of the aggregate demand curve, what should the central bank do if it wants to exactly counteract a 10% rise in velocity?