Explaining Quantity and institutional theory of inflation with given information.
1. Answer the following questions using the equation of exchange:
a. Nominal GDP is $10,000, the money supply is $5,000. What is the velocity of money?
b. The velocity of money is 4 and the money supply is $2,000. What is nominal GDP?
c. Suppose the velocity of money is constant and the money supply increases 8%. What is the increase in nominal GDP?
2. Explain why are economists which support the quantity theory of money more likely to support a monetary policy rule than economists who support institutional theories of inflation? (Explain both groups\' belief about the cause of inflation in your answer.)