1. Suppose the money supply is Taka 200, real output is 1,000 units, and the price per unit of output is taka 1. [Use the quantity equation for this problem

a. What is the value of velocity? (show the math with formula) 01.5

b. If velocity is fixed at the value you solved for in part

(a), what does the quantity theory of money suggest will happen if the money supply is increased to taka 400? 01.5 c. Is your answer in part

(b) consistent with the classical dichotomy? Explain. 02.5

2. A. Complete the table following the Understanding of Fisher effect 01.5 Real Interest Nominal Interest Inflation Rate 3% 10% 6% 2% 5% 3%

b. Suppose people expect inflation to be 3 percent and suppose the desired real interest rate is 4 percent. What is the nominal rate? 01

c. Suppose inflation turns out to be 6 percent. Was wealth redistributed to the lender from the borrower or to the borrower from the lender when inflation was expected to be 3 percent, but in fact, turned out to be 6 percent?