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. [6 marks] 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. [5 marks] (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.