2. When money changes hands rapidly, the amount of transactions carried out by a dollar (velocity), 3 is high. Assume now that economies A and B are identical: output, M 7 Y, and the total supply of money, M are the same, except that money in economy 13 has a bad odor. The more money you hold the worse is the odor and the more you sufferiin direct proportion to your money holdings. Assume that in each economy money demand is given by M d : iPY, and that the money market is in equilibrium: M d : M. (a) In which country will the velocity of money be higher? Defend your answer. (b) In which country will the price level be higher? Defend your answer and provide intuition for the result. (c) In terms of the BaumolTobin model, how does a worsening of the money odor affect the optimal number of visits to the bank to withdraw money? Explain. (d) Is your answer to (c) the same as for a change in the nominal interest rate? Explain