Question: 1. According to Alaskan state economist Mark Edwards, the multiplier effect of Alaska's trade with Japan is such that for every $1 billion exported from Alaska to Japan another $600 million is added to the state's economy.Matt Volz, "Trade Officials Hopeful for Japanese Recovery," Associated Press and Local Wire, June 22, 2004, BC cycle. Calculate the size of the export multiplier.
2. Suppose the velocity of money is constant and potential output grows by 3% per year. By what percentage should the money supply grow in order to achieve the following inflation rate targets?
a. 0%
b. 1%
c. 2%
3. Suppose the velocity of money is constant and potential output grows by 5% per year. For each of the following money supply growth rates, what will the inflation rate be?
a. 4%
b. 5%
c. 6%