Let’s Consider A Hypothetical Economy Where This Year’s

1. i) Let’s consider a hypothetical economy where this year’s money supply is Tk. 300, nominal GDP is Tk. 80000 and real GDP is Tk. 2000. a) What does the quantity theory of money say? b) Calculate the price level. c) Calculate the velocity of money d) Show stage b on a graph. ii) Describe briefly the tools the central bank uses to control the money supply in the economy, 3. a) Suppose economists observe that an increase in government spending of 200 crore taka raises the total demand for goods and services to 300 crore taka. If these economists ignore the possibility of crowding out effect, calculate the marginal propensity to consume (MPC)? b) Now suppose economists allow for crowding out. Would their new estimate of the MPC be smaller or larger than your answer to part a, explain?