Suppose the demand for money is (M/P)^d = kY where k is a constant. In this econ

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Suppose the demand for money is (M/P)^d = kY where k is a constant. In this economy, the money supply grows by 6% per year and real incomes grow by 4% per year. a) What is the average inflation rate? b) If instead, real incomes grew by -2%(shrank by 2%) per year, what would be the average inflation rate? c) Suppose k=0.5. In words, explain what this would mean about household preferences to hold money and explain what is would imply about velocity money. d) Instead of a constant, suppose k was growing by 1% per year. Explain in words what this would imply about the inflation rate? No calculations are needed. Just a written explanation is sufficient.

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