Use the Quantity Equation for this problem. Suppose the money supply is $200, real output is 1,000 units and the price per unit of output is $1. Calculate the velocity of money? Answer: Assuming money neutrality, if the velocity is constant at the value you solved in part (a), what does the quantity equation suggest will happen if the money supply is increased to $400? Answer: Consider your answer to part (b). Would your answer be different if the short-run rather than the long-run is considered? Explain (i.e. Money neutrality no longer applies) Answer: Now suppose that the money supply is growing at 8 percent per annum and real GDP is growing at 4.6 percent per annum. What is the inflation rate? (Assuming velocity remains constant) Answer: Question 4 Using the Aggregate Demand and Aggregate Supply (AD-AS) diagram in the short-run,illustrate what will happen to Singapore’s aggregate demand and/or aggregate supply under each of the following situations.State how this will affect the inflation rate and the unemployment rate. The US and other trading partners adopt protectionist trade policies, increasing taxes and tariffs on all imported goods and services. Answer: The government reduces business taxes for all companies operating in Singapore.
