$1.$

Consider an economy with the money demand function is $($Y$)$d Y

a$.$

b$.$

c$.$

d$.$

e$.$

Calculate velocity if the nominal interest rate $($j$)$ is I percent.

Assume output $($Y$)$ is I units and the money supply $($M$)$ is Sl$.$ Calculate the price level $($P$).$

Suppose the announcement of a new head of the central bank, with a reputation as a tough

inflation fighter, reduces expected inflation by $2\mathrm{.}0$ percentage points. According to the Fisher

effect, what is the new nominal interest rate?

Assume in the aftermath of the announcement, both the economy's output and the current

money supply are unchanged. Calculate the new price level.

If the new central banker wants to keep the price level the same after the announcement, at

what level should she set the money supply?