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PRINCIPLES OF MACROECONOMICS, HOMEWORK 8      DUE 11/12/08 or 11/13/08 NAME ______________________________________________________________ 1.  This year in Wrexington, the money supply is $500, real GDP is $5,000, and the price level is 2.   a.  What is the velocity of money in Wrexington? ___________________________________ b.  Suppose that velocity is constant and Wrexington’s output of goods and services rises by 5% each year.  What will happen to the price level next year if the central bank keeps the money supply constant? __________________________________________________________________________ c.  What should Wrexington’s central bank do to the money supply next year if it wants to keep the price  level stable? __________________________________________________________________________ 2.  If inflation was expected to be 3% per year but actually turned out to be 5% that year, then which of the 
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This note was uploaded on 09/15/2011 for the course 06E 002 taught by Professor Kim during the Spring '08 term at University of Iowa.

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