1. The growth rate of the money supply in a particular year was 8.5%. What was the growth rate of
real GDP if the inflation rate in the same year was 4%? (4)
2. What will happen (in one sentence) if the growth rate of the money supply doubles in the following year, while the growth rate of real output remains unchanged? Be specific. (4)
c. What steps can the Fed (central bank) take in order to reduce the rate of inflation? (2)
