1. Suppose you are the head of the central bank and your mandate is to keep inflation at 2% per year.

Using the Quantity Theory of Money explain what you would do to the money supply in response to, (a) Real GDP increases by 2% in a boom.

(b) Real GDP grows at 2% per year.

(c) The velocity of money increases by 3% due to new paying apps.

2. Show what happens to the natural rate of unemployment when

(a) The job creation rate increases. (

b) The job destruction rate decreases.