1. List and briefly explain
   1. Four costs associated with expected inflation
   2. Suppose that Brazil is in a state of hyperinflation. If the goal of the Brazilian Central Bank is to stabilize the price level, explain carefully what path the money supply should follow. (Assume that money demand depends on the nominal interest rate). Assuming that the Central Bank’s policy is successful, show and briefly explain the path of the price level, the inflation rate, the nominal interest rate, the money supply, and the level of real balances both during and after the hyperinflation.

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Four Costs Associated with Expected Inflation 1 Menu Costs The costs associated with changing prices Firms incur expenses to update and print new pric... View the full answer