1. Consider an economy with the money demand function is (rM)d=21i a. Derive the correct expression for the velocity of money. b. Calculate velocity if the nominal interest rate is 4 percent (i=4). c. Suppose output (Y) is 5000 units and the moncy supply (M) is $700. Calculate the price level (P). d. Suppose the announcement of a new head of the central bank, with a reputation as a tough inflation fighter, reduces expected inflation by 2.5 percentage points. According to the Fisher effect, what is the new nominal interest rate? c. Assume in the aftermath of the announcement, both the economy's output and the current. money supply are unchanged. Calculate the new price level. f. If the new central banker wants to keep the price at its initial level (as solved in part c ), at what level should she set the money supply