a.Suppose that the price of Bitcoin were to double in the next three months.What would happen to the amount of energy used by Bitcoin on a daily basis?Explain your answer briefly (in 2-5 sentences).

The skyrocketing price of Bitcoin will cause

energy consumption to skyrocket. When the price of Bitcoin rises, we can expect

miners to spend more and more electricity to mine until the cost of electricity

is roughly the same as the income, which means that the amount of energy used

by Bitcoin every day will increase.

b.Suppose that the number of daily Bitcoin transactions were to double in the coming year, but the dollar price of Bitcoin remained unchanged.What would happen to the amount of energy used by Bitcoin on a daily basis?Explain your answer briefly (in 2-5 sentences).

The amount of energy consumed by mining (mostly

electricity) is directly related to mining revenue. The doubling of the

transaction volume in the next year offsets the rate of decrease in the number

of bitcoins (about four years to half), and the currency value remains

unchanged Mining income increases, and daily energy consumption will also

increase

c.Briefly (in two or three sentences) describe the quantity theory of money.Using FRED, construct a graph of the percentage change in the monetary base (over the preceding 12 months) and the percentage change consumer price index (CPI) (over the preceding 12 months) for every month since January 2001. Briefly (in two or three sentences) explain why the graph is inconsistent with the quantity theory of money.

The quantity theory of money states that the general price level of the goods and service is directly proportional to the amount of money in circulation or money supply.

The quantity theory of money is a monetary theory

that uses the changes in the quantity of money in circulation to explain the

changes in commodity prices. The core idea is to assume that other factors

remain unchanged, that the level of commodity prices fluctuates in direct

proportion to the quantity of money, and the value of money is inversely

proportional to the quantity of money.

d.Consider a zero-coupon bond that matures in 10 years.It has a face value of $1000 and a current secondary market price of $1400.Compute the yield to maturity to this bond (show all your work).Explain briefly (in two or three sentences) why we might expect the price of this bond to fall rapidly.

r=(1000/1400)^(1/10)-1=0.9669-1=-3.3%

Because the yield to maturity is negative, the price of the bond will return to its value, so we can expect the price of this bond to fall rapidly