"Inflation is always a monetary phenomenon in the long-run."

1. State whether the above statement is "True" or "False". (2 points)

2. Explain your answer using the Quantity Theory of Money assuming that the velocity of money and the level of output is constant in the long-run. (9 points)

3. Graph the AD-AS model in the long-run (when the AS curve is vertical) to provide your reasoning and show how the prices are changing in your model. (9 points)

4.Use the Quantity Theory of Money to explain why the AD curve is downward sloping. (10 points)