Given the real money demand function, M^d/P= 1200+0.5Y-800i

1) Suppose that the quantity theory of money holds and that the asset market is in equilibrium M^d/P= M/P, where M is the nominal money supply. What is the real money demand, M^d/P and money velocity given that Y=2500 and i=0.1

a) M^d/P=2530 & V=1.012

b) M^d/P=2530 & V=0.988

c) M^d/P=2370 & V=1.055

d) M^d/P=2370 & V=0.948

2) Continuing from question 1, if the asset market is in equilibrium noninal money supply, M=2600, determine the price level.

a) 1.097

b)0.974

c) 1.028

d)0.912

3) Assume that quantity theory of money holds, and that money velocity has increased to 2, while income remains unchanged at Y=2500. Determine the real money demand. Additionally, find the new price level, given that the asset market is in equilibrium (M^d/P= M/P). Suppose that the nominal money supply is unchanged.

a) M^d/P=1250 & P=2.08

b) M^d/P=1550 & P=0.408

c) M^d/P=1660 & P=1.68

d) M^d/P=1250 & P=0.408

4) Assume that the velocity change happened over 1 year. Considering questions 3 and 2, find the inflation rate during this period.

a) 0.896

b) 0.727

c) 4.098

d) 0.68

5) Suppose that the nominal interest rate has declined along with the real interest rate r=0.04, while expected inflation ^e=0.035. If Y=2500, determine the new real money demand. If P=2 and that the goods market is in equilibrium, the nominal interest rate reduction resulting from the bank raising the money supply, M to:

a) M^d/P=2510 & P=5020

b) M^d/P=2390 & P=4780

c) M^d/P=2390 & P=5020

d) M^d/P=2510 & P=4780