. Consider an economy for which the current GDP is $800 billion, the

multiplier is 3, the income multiplier with respect to the money supply is

4, the money multiplier is 5, the marginal tax rate is 20%, the real interest

rate is 3%, the current budget deficit is $30 billion, the longrun real rate of

growth is 2%, the current money supply is $200 billion, the rate of money

supply growth is 10%, and financial innovations are decreasing money

demand by 1% per year. Marks are given for your explanations, not the

final answer.

What should be the longrun rate of inflation?

What should be the price of a Tbill due to mature in six months at

its face value of $1,000?