2. The following problem illustrates Milton Friedman's money growth rule which is a center piece of the Monetarist thinking of macroeconomics. Suppose the economy is given by the following: Technology: Y = 10K,(L;).7. Consumption Function: C = .TY. Depreciation rate: 10% (i.e. 6 = .10). Population growth: 1% (i.en = .01). Technological growth: 1% (i.e g = .02). 2N Money demand: L; = 3Y. In addition suppose that Lo = Lo = 10, Mo = 10, 000 and Ko is such that the economy is at the steady state. (Note, don't confuse the different notational uses for L.) (a) Find the steady state level of kt, y, G and it. (b) What is Ko. (c) What is Yo- (d) What is Po. One important part of Milton Friedman's monetarist theory is the rule for money supply growth. This rule requires that the money supply grow at the same rate as GDP. It is argued that if this rule is followed, then long term inflation can be avoided. To illustrate this result, we now apply Milton Friedman's rule to this example economy