Assume there is only one good in the economy,Wheat. The economy has enough labour capital, and land to produce Y=800 bushels of wheat. In 2005,M=2000 dollar, P=5 dollar/bushel.

1)Compute the nominal GDP and the velocity of money in 2005

2)Assume that the output remains unchanged in 2006, and the central bank increases the money supply by 5%, to 2100 dollar. Compute the 2006 values of the nominal GDP and P. Compute the inflation rate in 2006.

3)Now suppose that technological progress causes Y to increase to 824 in 2006, and the central bank increases the money supply by 5%, to 2100 dollar. Compute the inflation rate in 2006