Question: 1) The Liquidity Function is given by L(Y,i) = Y 1/2 /(1000i) .25 . The real interest rate is 0.5%, the expected rate of inflation

1) The Liquidity Function is given by L(Y,i) = Y^1/2/(1000i)^.25 . The real interest rate is 0.5%, the expected rate of inflation is 1.1%, the price level is 6 and the nominal money supply is 120.

a) What is the equilibrium level of real GDP in the economy.

b) What is the level of velocity in the economy (velocity is the average number of times a unit of currency is used in transactions in the economy. It measures the speed of circulation of a currency. For instance, if nominal GDP is 10,000 and there are 1,000 one-dollar bills, then each dollar bill would be used ten times, on average).

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