question archive 5) Assume a hypothetical economy in which the velocity is constant at 2 and real GDP is always at a constant potential of $4,000

Subject:EconomicsPrice: Bought3

5) 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.

a)Using the equation of exchange, compute the price level in each year.

b)Compute the inflation rate for each year.

c) If the central bank wanted to keep inflation at 10% each year, what money supply should it have targeted in each year?