An economy is experiencing high inflation. In this economy the price levelhas doubled after one year, that is, the price new level is.

(a)Your endowment of cash at the beginning of yearis. You kept the money idle (e.g. under the mattress) for the whole year. How much money you have to add to your money balances in order to maintain the initial purchasing power of your cash endowment at the prices prevailing in the year? Explain briefly. Correct answer without explanation does not gain marks.

[5 marks]

(b)How much were you taxed by the inflation tax, assuming that you kept theunder your mattress during the whole year? [5 marks]

(c)A resident in this economy bought one Bitcoin at a total cost ofat the beginning of yearand sold it byat the end of year, what was the real rate of return on your investment? [10 marks]