Question: Question 2 (20 marks) (a) Define the Quantity Equation. Why is it called the Quantity Equation? (6 marks) (b) Suppose that the current money supply

Question 2 (20 marks) (a) Define the Quantity Equation. Why is it called the Quantity Equation? (6 marks) (b) Suppose that the current money supply (M) is $4,800 million, nominal gross domestic produc (GDP) is $72,000 million, and the real gross domestic product (Y) is $12,000 million. Calculate the price level (P) and velocity of money (V) respectively. Show your working. (8 marks) (c) How do the economists convert the Quantity Equation to Quantity Theory of Money? What is the basic prediction proposed by this theory? (6 marks)

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