3. Suppose the quantity theory holds at all points in time so that there is an imm and full response of the price level (and no response of either velocity or output change in the total stock of money in the economy. Andy, Martha, and Chris up the whole population in this economy; their holdings of money are $70, $5 $80, respectively. Assume that the government's holdings of money are zero (the stock of money is the amount of money held by both consumers and the govern Suppose now that, as a statement of protest against his former employer-the C of Economic Advisers (Andy used to be an economist there)-and on live TV, burns all his money. (a) Does Andy's money fire destroy real resources? Explain. (b) Does the money fire change the distribution of real wealth of the different in this economy? Assume that the money was all the wealth of these cons (i.c., they owned no other assets) and try to calculate how the money fire ch the real distribution of wealth. (c) If Andy's fire was observed by Chair Powell and, as a result, he instruct New York Fed crew to issue $70 to fully sterilize Andy's money fire (i.c., s the total money stock remained at $200), what would the implication have in terms of wealth redistribution? You may assume that the new money is a purchase of a $70 government bond directly from the government. 1. Suppose that the demand for real money balances takes the form (M/P)d = L(i, Y) = Y/(1i). (a) If output grows at the rate g, at what rate will the demand for real money ba grow (assuming constant nominal interest rates)? (b) What is the velocity of money in this economy? (c) If inflation and nominal interest rates are constant, at what rate will vo grow? (d) Consider now the more sophisticated theory of money so assume that i = r where Ex is expected inflation. How will an increase in expected inflation money demand, velocity, and the price level today? Does the increase in ext inflation make one dollar today more or less valuable in real terms? P intuition for your answers