Suppose that the money demand function is given by PMd=L(Y,r+e)=700+0.1Y5000(r+e) where Md is the nominal money balances demanded, P is the price level, Y is total output, r is the real interest rate, and e is the expected inflation rate. (a) Assuming that the asset market is currently in equilibrium at r=0.05. Calculate the nominal money supply Ms if Y=2000,P=2 and e=0.05. What is the velocity of money in this economy? What is the value of k in the quantity theory of money? (b) Assume that the quantity theory of money holds and that velocity is constant at the level you get in (a). In this same economy, the government fixes the nominal money supply (Ms) at 500 . With output fixed at its full-employment level (Y=2000) and assuming that prices are flexible, what will be the new price level? What happens to the price level if the nominal money supply rises to 600? Now suppose the central bank follows a money supply rule. In particular, it sets the money supply according to: Ms=1000+0.1Y4000 (c) If expected inflation equals actual inflation and =e=0.03,Y=1000, and r=0.02, calculate the price level in this economy. The following part is related to the money growth and inflation. Now start with a general form of money demand function: PMd=L(Y,r+e) (d) Suppose the economy is in long-run steady state equilibrium where output growth is 5%, inflation is 1%, and the interest rate is constant. If the money supply is growing by 4%, what would be the income elasticity of money demand in this economy? Suppose that the money demand function is given by PMd=L(Y,r+e)=700+0.1Y5000(r+e) where Md is the nominal money balances demanded, P is the price level, Y is total output, r is the real interest rate, and e is the expected inflation rate. (a) Assuming that the asset market is currently in equilibrium at r=0.05. Calculate the nominal money supply Ms if Y=2000,P=2 and e=0.05. What is the velocity of money in this economy? What is the value of k in the quantity theory of money? (b) Assume that the quantity theory of money holds and that velocity is constant at the level you get in (a). In this same economy, the government fixes the nominal money supply (Ms) at 500 . With output fixed at its full-employment level (Y=2000) and assuming that prices are flexible, what will be the new price level? What happens to the price level if the nominal money supply rises to 600? Now suppose the central bank follows a money supply rule. In particular, it sets the money supply according to: Ms=1000+0.1Y4000 (c) If expected inflation equals actual inflation and =e=0.03,Y=1000, and r=0.02, calculate the price level in this economy. The following part is related to the money growth and inflation. Now start with a general form of money demand function: PMd=L(Y,r+e) (d) Suppose the economy is in long-run steady state equilibrium where output growth is 5%, inflation is 1%, and the interest rate is constant. If the money supply is growing by 4%, what would be the income elasticity of money demand in this economy