Question 1)

You have been told the following data for a small Latin American economy. The money supply this year, 2021, is M = 100 billion pesos while nominal expenditure is PY = 600 billion pesos. Your best estimate of the growth rate of real output between this year and next is 0.03 or 3%.

(a) Use this data to provide an estimate of the velocity of money for this year.

(b) To finance the government's fiscal deficit, the central bank has been ordered to print an extra 10 billion pesos to be in circulation next year (so the money supply will increase to 110 billion pesos). Use the quantity theory of money to make a forecast of the inflation rate between this year and the next

(c) What would happen to your forecast of inflation if velocity was not in fact constant between this year and next? To be specific, suppose velocity increases by gV = 0.02 or 2%. What would the true inflation rate be?

Question 2)

Please Read the blog post by Branko Milanovic titled "Beware of mashup indexes: how epidemic predictors got it all wrong" at https://glineq.blogspot.com/2021/01/beware-of-mashup-indexes-how-epidemic.html and answer the questions

(a) What six dimensions do the authors of the GHS index use to compile the index?

(b) What relationship would you expect to hold between GHS index and GDP per capita? That is, would a rich country be more prepared to fight health risks? Which dimensions of the GHS index you would expect to be positively correlated with GDP per capita?

(c) From reading the blogpost, how did the countries that were ranked high in GHS perform to fight covid on average?

(d) How does this new information affect your understanding of the institutions story we discuss in the class.