Assignment
1. Suppose you are given the following information: Qs = 100 + 3P Qd = 400 - 2P where Qs is the quantity supplied, Qd is the quantity demanded and P is price.
a. From this information compute equilibrium price and quantity.
b. Now suppose that a tax is placed on buyers so that Qd = 400 - (2P + T) where T is taxes. If T = 15, solve for the new equilibrium price and quantity.
c. Compare your answers in (a) and (b). What does this show you?
2. (a) Explain the adjustment process that creates a change in the price level when the money supply increases.
(b) Explain with the aid of a diagram what happens to the money supply, money demand, the value of money, and the price level if the central bank increases the money supply.
(c) Explain with the aid of a diagram what happens to the money supply, money demand, the value of money, and the price level if people demand less money at every price level.