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Question One (21 marks) An economy is at the long-run equilibrium. Then the Central Bank announces a regulatory change such that banks will start paying interest on chequing accounts. 1. How does this change affect the money demand? 2. What happens to the velocity of money? 3. If the Central Bank keeps the money supply constant, what will happen to output and prices in the short run and in the long run? Provide graphical illustration and comment. 4. If the goal of the Central Bank is to stabilize the price level, should the Central Bank keep the money supply constant in response to this announcement? If not, what should it do? Why? Provide graphical illustration and comment. 5. If the goal of the Central Bank is to stabilize output, how will the answer in part (4) of this question change? Provide graphical illustration and comment