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Question 1 (4 points) I. Due to innovations in the US banking network, there is an unexpected increase in the velocity of money by 5 percent. The growth of money supply and output in the US remain unchanged. (1) (1 point) What is the change in inflation due to the increase in velocity of money? b) (1 point) US and Japan are major trading partners. The nominal exchange rate is 110 Yen per US$. Due to the change in velocity of money in USA, is there any impact on the nominal exchange rate? (Hint: Think about law of one price) II. Suppose the price of US$ is denoted by P, and it is measured in Yen per Dollar. The supply and demand of quantity of US dollar, represent by Q, are given by : P = 100 262 P = 2Q a) (1 point) What is the equilibrium exchange rate? b) (1 point) There are widespread strikes in the exporting sector of US that lead to a decline in demand of dollars to P = 60 26.2. What is the extent of oversupply of dollars at the old exchange rate? What is the new exchange rate