2. Suppose a country has a money demand function Mt - KYt Pt , where k is a constant parameter. The money supply grows by 12 percent per year, and real income grows by 4 percent per year. (a) What is the average inflation rate? (b) How would inflation be different if real income growth were higher? Explain. (c) How do you interpret the parameter k? What is its relationship to the velocity of money? (d) Suppose, instead of a constant money demand function, the velocity of money in this economy was growing steadily because of financial inno- vation. How would that affect the inflation rate? Explain? 3. "According to the Quantity Theory of Money, an unanticipated money-based inflation stabilization program that permanently reduces the money growth rate from 5 percent to 0 percent may cause deflation in the period the program is announced." Do you agree with this claim? Explain