Suppose residents of the imaginary land of Angria use rubies as money. Every ruby is used, on an average, 7 times per year to carry out transactions. The total supply of rubies is fifty million.

a)What is the level of aggregate nominal spending in Angria according to the quantity theory of money?

b)Suppose now that the residents of Angria use less money to conduct same number of transactions (i.e. each individual carries fewer rubies). What is the effect on the velocity of money (ruby here)?

c)Suppose a new financial product named "bonds" introduced in economy of Angria. How the introduction of this new financial product will affect the willingness to hold rubies (money) and consequently the velocity of rubies (money).

d)Plot the following table on graph showing average money growth rates on the horizontal axis and average inflation rates on the vertical axis.You can use excel to create the chart and paste it here or you can use pen and paper and take a picture and paste here. The marks will be based on neatness and completeness (like labelling of axes, properly marking the countries etc.) of the graph.

Countries

Argentina

Bolivia

Chile

Mexico

Inflation rate

10.88%

5.59%

3.20%

4.36%

Money growth rate

27.92%

34.12%

12.76%

11.44%

Inflation is measured using the CPI and the monetary aggregate under consideration is M2

Your Graph

e)Do the data reported in above table support the quantity theory of money? Explain your answer with the help of the graph you draw in part 'd'.