(a) Explain the quantity theory of money. (2) (b) Explain a cause of inflation using the quantity theory of money. (3) l. (a) An economy's money supply growth is E: per cent, real output growth is 4 per cent, and nominal interest rate is 3 per cent. (i) Find the ination rate. (1) (ii) Find the real interest rate. (1] (b) How would falls of GDP growth due to CovidlS pandemic affect ination rate in the economy? (2) [c] 1What policy would you recommend for the problem in (b)? (1) 2. The government of a small open economy with floating exchange rate system wants to establish a stronger currency. (a) Suggest both an appropriate monetary policy adjustment and an appropriate fiscal policy adjustment that would allow the economy to move to a higher exchange rate. Explain your answer using Mundell Fleming model for each policies. (3) (b) 1il'hi'hat are the consequences of these adjustments on domestic output and net exports? (2] 3. In the midst of CovidlE) pandemic, firms cut production due to lockdown. (a) How will firms' cutting of production affect employment? Explain you answer using an appropriate diagram. (2) (b) Suppose firms do not want to lay off workers, explain how firms decision may affect employment and wages in the labour market. Explain labour market using an appropriate diagram. (3) 4. An economy has a Phillips curve takes the form of 5: 0.04 0.5[u - 0.03) where is the actual ination rate and u is the unemployment rate. (a) 1What is the shortrun relationship between ination and unemployment according to the Phillip curve function above? (1) (b) Explain demand pull inflation using the expression of Phillips curve above. (2)