Suppose the economy has the following values for money supply (M) and nominal GDP (PY) for the past three years 2012 2013 2013 M 500 550 605 PY 5000 6000 7200 (a) Calculate the rate at which money supply growing from each year to the other (3marks) (b) Calculate the rate at which nominal GDP is growing from each year to the other (3marks) (c) Calculate the velocity for each year (4.5 marks) (d) Calculate the rate at which velocity is growing from each year to the other (3 marks) (e) predict (calculate) the values for 2014 under the following different case (i) What will be nominal GDP in 2014 if velocity was constant from year 2013 to year 2014 and money supply increases by 50% (1.5 marks) (ii) What will be nominal GDP if money supply grows at 20 % and velocity declines by 30% (1.5 marks) (iii) If velocity and aggregate output remains constant from year 2013 to 2014, what will be the inflation rate in 2014 if money supply increases by 10%? (1.5 marks) (f) Explain one factor that would reduce velocity and one factor that would increase velocity. (3 marks) (g) Why does Friedmans view of the demand for money suggest that velocity is predictable, and Keynes suggests the opposite? (3 marks) (h) Why does Friedman think that money demand is unaffected by changes in interest rates, but Keynes thought that it is affected (3 marks) (i) In Keyness analysis of the speculative demand for money, what will happen to money demand (and why) if people suddenly decide that the level of interest rate has gone above the normal level. (3 marks)