a. What are the effects on the price level, P, the nominal interest rate, i, the real interest rate, r, real money balances, M/P, nominal GDP, P*Y, real GDP, Y, and the velocity of money, V, from the following events? : i. A once and for all decrease in the nominal quantity of money, M. (10% weight) ii. A once and for all increase in the money growth rate. (10% weight) iii. A simultaneous one-off increase in money supply combined with an increase in the money demand. (10% weight) b. Explain the concept of neutrality of money, referring to both a one-off increase in the money supply and an increase in the growth rate of the money supply. Explain whether the neutrality of money is valid and consistent with empirical findings. (20% weight)
