Refer to the following:
a. The central bank of the Republic of Moldova needs to determine by how much to increase the money supply next year, if they estimate an increase in the overall economic activity (real GDP) of 2.5 percent and have a target inflation rate of 4 percent. The velocity of money has been observed to be constant over the past many years. If you were a consultant to the government, what would your advice be?
b. Next year, the National Bank of Moldova wishes to reduce inflation to 2 percent, and estimates an increase in real GDP by 1.5 percent. What should be the change in the money supply?

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The Answer of Refer to the following:
a. The central bank of the Republic of Moldova needs to determine by how much to increase the money supply next year, if they estimate an increase in the overall economic activity (real GDP) of 2.5 percent and have a target inflation rate of 4 percent. The velocity of money has been observed to be constant over the past many years. If you were a consultant to the government, what would your advice be?
b. Next year, the National Bank of Moldova wishes to reduce inflation to 2 percent, and estimates an increase in real GDP by 1.5 percent. What should be the change in the money supply?

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