Q1. Describe the sequence of events that would follow if an increase in political uncertainty led households and firms to wish to increase their stocks of money held for precautionary purposes.

Q2. Assume that there is a sizeable cyclical increase in the GDP. What would be the effect on the interest rate and GDP if the bank decided to hold the money supply constant? What would be the effects on the GDP and the money supply if the bank decided to hold the interest rate constant?