macroeconomics

Question 4 (25 marks total) Below are questions about Money Growth and Inflation. Answer each question with sufficient explanations. a) b) c) d) An economy experienced unexpected deflation in year 1. Provide a possible reason with sufficient explanation. (4 marks) You have learned six costs of inflation. Identify if each cost occurs when we have unexpected deflation. (10 marks) To avoid unexpected deflation, the central bank of the economy decided to increase money supply by 5% every year. However, there was less than 5% inflation in year 2. What could be a possible reason for this outcome? Explain these changes using the money supply-demand diagram. (3 marks) In year 3, the inflation rate was 5% as expected by the central bank and citizens. When the inflation is expected, do the costs of inflation still occur? What cost can be lower compared to when we have unexpected inflation? Explain for each cost. (8 marks)