Q1. Suppose a consumer has an income of $500 and faces prices Px=5 and Pz=10. Write the equation for the budget constraint.
Q2. Suppose a given country experienced low and stable inflation rates for some point of time, but then inflation picked up and over the past decade has been relative high and quite unpredictable. Explain how this new inflationary environment would affect the demand for money according to portfolio theories of money demand, What would happen if the government decide to issue inflation protected securities.