1. Suppose-the-velocity-of-money-is-constant-and-potential-output grows-by 3% per-year.-By-what-percentage-should-the-money supply-grow-in-order-to-achieve-the-following-inflation-rate targets?
2. Assume-a-hypothetical-economy-in-which-the-velocity-is-constant at 2 and-real-GDP-is-always-at-a-constant-potential-of $4,000. Suppose-the-money-supply-is $1,000 in-the-first-year, $1,100 in the-second-year, $1,200-in-the-third-year,-and $1,300 in-the-fourth year.

• Using-the-equation-of-exchange,-compute-the-price-level-in each-year.
• Compute-the-inflation-rate-for-each-year.
• Explain-why-inflation-varies,-even-though-the-money-supply rises-by $100 each-year.
• If-the-central-bank-wanted-to-keep-inflation-at-zero,-what should-it-have-done-to-the-money-supply-each-year?
• If-the-central-bank-wanted-to-keep-inflation-at 10% each-year, what-money-supply-should-it-have-targeted-in-each-year?

3 The-following-data-show-M1-for-the-years 1993 to 1997, respectively-(all-figures-are-in-billions-of-dollars): 1,129.6; 1,150.7; 1,127.4; 1,081.3; 1,072.5.

• Compute-the-M1-velocity-for-these-years.-(Nominal-GDP-for these-years-is-shown-in-problem-1.)
• If-you-were-going-to-use-a-money-target,-would-M1-or-M2 have-been-preferable-during-the 1990s?-Explain-your reasoning.