1. Consider a country that has inflation of 10 percent per year. Real output growth is 2 percent. If velocity of money is constant, what is the money supply growth rate?

A) 2%

B) 8%

C) 10%

D) 12%

2. Continue from the previous question. If PPP holds, what is the sign (appreciation vs. deprecia- tion) and the magnitude of the change in the nominal exchange rate? (assume the foreign country has 0 inflation).

A) Nominal depreciation by 12%

B) Nominal depreciation by 10%

C) Nominal appreciation by 12%

D) Nominal appreciation by 10%