Q1. In 2019, an economy produces wheat only and has enough labor, capital, and land to produce 500 bushels of wheat (Y or real GDP). Price of wheat and money supply are $2 per bushel and $1,000 respectively. In 2020, the central bank increases money supply by $ 1,040. Suppose both the velocity of money (V) and the amount of wheat produced remain unchanged. (10 marks)

a. Compute the velocity of money and nominal GDP in 2019. (4 marks)

b. Calculate inflation rate in year 2020. (2 marks)

c. Use a well-labelled money supply-demand diagram to illustrate and explain what happen to the price level and the value of money after such money injection? (4 marks)