Question One: Money Using the quantity theory of money. suppose that this year's money supply is $50 billion. nominal GDP is $1 trillion. and real GDP is $500 billion. a) What is the price level? What is the velocity of money? (3 Marks) b) Suppose the velocity is constant and the economy's output of goods and services rises by 5% each year. What will happen to nominal GDP and the price level next year if the Bank of Canada keeps the money supply constant? (3 Marks) c) What money supply should the Bank of Canada set next year if it wants to keep the price level stable? (3 Marks) d) What money supply should the Bank of Canada set next year if it wants ination of 10%? (3 Marks) Question Two: Exchange Rate The exchange rate is an important price that affects consumers. producers. investors and many other more in the foreign exchange market. a) Discuss the economic logic behind the correlation between the nominal exchange rate and the quantity of a currency (say. Canadian dollars) demanded. (4 Marks) b) Discuss the economic logic behind the correlation between the nominal exchange rate and the quantity of a currency (say. Canadian dollars) supplied. (4 Marks)