1. Explain how each of the following may affect the economy:
(a) What effect would changes in the nominal interest rate have on the economy?
(b) What effect would and aggregate demand shock have on the economy?
(c) What about an inflation shock?
Now, answer the same questions (a), (b), (c); but suppose the quantity theory of money holds in the short run as well as in the long run (i.e. inflation adjusts immediately to changes in the money supply).