1.The quantity theory of money:What is the key endogenous variable in the quantitytheory?Explain the effect on this key variable of the following changes:(a)The money supply is doubled.

(b)The velocity of money increases by 10%.

(c)Real GDP rises by 2%.

(d)The money supply increases by 3% while real GDP rises by 3% at the same time.

2.Okun's law:Suppose the economy has a natural rate of unemployment of 6%.

(a)Suppose short-run output over the next 4 years is +1%, 0%, -1%, and -2%.Accordingto Okun's law, what unemployment rates would we expect to see in this economy?

(b)Consider another economy in which the unemployment rate over the next 3 years is 6%,7%, and then 4%.According to Okun's law, what are the levels of short-run output Yin this economy?

3.Analyzing macroeconomic events with the IS curve:Consider the following changesin the macroeconomy.Show how to think about them using the IS curve, and explain howand why GDP is affected in the short run.

(a)The government offers temporary investment tax credit:for each dollar of investmentthat firms undertake, they receive a credit that reduces the taxes they pay on corporateincome.

(b)A booming economy in Europe this year leads to an unexpected increase in the demandby European consumers for U.S. goods.

(c)U.S. consumers develop an infatuation with all things made in New Zealand and sharplyincrease their imports from that country.