Assume the current money supply is $1,000B and that the velocity of circulation is 5. Real transactions are $500 billion and the price level index is 10. Next year, the Federal Reserve is expected to increase the money supply to $1,200B and real transactions are expected to increase by $50 billion. If the velocity of money remains constant, what will be the inflation rate if the Equation of Exchange holds? Note: Inflation rate = change in price indexes (%) Question 2 Provide the missing data in the following table: Risk-free rate (General interest rate) (%) 3 3 2.59 Default Risk Premium (%) Case A B D Nominal Rate Maturity Risk (%) Premium (%) 9 2 2 8.5 1 14 2 Callability Risk Premium (%) 1 2 2 1.5 2.5 4 Hint: use I=r+p+k