Please answer the questions completely and provide explanations to the questions.
Question 1
In the equation of exchange, suppose that M = 10,000, P = 100, Q = 200 , and V = 2. If the money supply increases by 10% and output increases by 8%, and velocity does not change, what would be the new value for the price level? (Show your work for full credit.)
Question 2
Using an Aggregate Supply/Aggregate Demand curve to illustrate, explain how a decrease in the money supply will affect the economy. Be sure to show how output and price level are affected in the long-run and short-run for full credit
