a.Explain the impact of following events on the high-powered money (monetary base), the money multiplier, and the money supply.

i.The State Bank of Pakistan (SBP) s sells/treasury bills in an open market operation.

ii.The SBP increases the interest rate it pays banks for holding reserves.

iii.The SBP decreases the reserve requirements.

b.Suppose a country has a money demand function (M/P)d= kY, where k is a constant parameter. The increase in prices is 5% per year, and real income grows by 7% per year.

i.Find the money supply in the country.

ii.How to rise in real income growth rate will affect the money supply in the country.

iii.Interpret the parameter V in the quantity theory of money, and how it is linked with money demand.