State 0 and State 1 are two positions of long-run equilibrium. In State 1 money supply growth is 6 percentage points higher than in State 0. All figures are in per cent per annum terms.

Assume that money is neutral and that purchasing power parity holds. Compare the effects of the two alternative money supply growth rates on the rest of the economy by filling in the blanks in the following table. Briefly explain your answers.

Note: Realize that you cannot compute the rate of growth of the ratio x/y by dividing the rate of growth of x by the rate of growth of y; nor can you compute the rate of growth of the product xy by multiplying the rate of growth of x by the rate of growth of y Note: Realize that you cannot compute the rate of growth of the ratio x/y by dividing the rate of growth of x by the rate of growth of y; nor can you compute the rate of growth of the product xy by multiplying the rate of growth of x by the rate of growth of y