2. If velocity were constant at 1.5 while M2 rose from $11 trillion to $12 trillion in a single year, what would happen to nominal GDP? If real GDP rose by 2.09 percent, what would be the level of inflation?

3. According to Irving Fisher, when velocity and output are fixed, the quantity theory of money implies that inflation equals money growth. What does the quantity theory imply for inflation in the long run in an economy with growing output and stable velocity?

4. If velocity were predictable but not constant, would a monetary policy that fixed the growth rate of money work?

5. Describe the impact of financial innovations on the demand for money and velocity

6. Explain why we observed a fall in the velocity of M2 during the financial crisis of 20072009.

7. Draw a graph of money demand and money supply with the nominal interest rate on the vertical axis and money balances on the horizontal axis. Assume the central bank is following a money growth rule where its sets the growth rate of money supply to zero. Use the graph to illustrate how fluctuations in velocity imply that targeting money growth results in greater volatility of interest rates.