Question: Let velocity be 3 and the money supply be $500.
a. If we assume that velocity is independent of the price level, what is the aggregate demand curve?
b. Now let the long-run aggregate supply curve be Y=100. What will the price level be?
c. Now imagine that there is an increase in population which causes the LRAS curve to become Y=150. If nothing else changes, what will the price level become?
d. Now imagine that the central bank wants to keep the price level at the same level as part b. What (specifically) should they do to the money supply?
e. Show the changes in parts c and d on a graph.