1) we discussed a simple economy with three person each producing one unit of a product. In that economy, suppose payment technology is instant in the purchase of coffee, but the money transfer takes x days in the purchase of apples and 2x days in the purchase of tea where x ≥ 1. Assume price level is Po. Then, what is the nominal money demand and real money demand in the economy?
2) Suppose inflation expectations of individuals increase by one percentage point for every five percent increase in the current price level of apples. Further assume that real money demand of individuals decreases by one percent for every two percentage point increase in nominal interest rate. Then, what should be the increase in nominal wage rate in long run with a sudden ten percent increase in money supply?