The supply of credit cards is given by q = 1 400X, where X are real credit card balances, q is the real price of the credit card balance. You also know that R = 0.05 (nominal interest rate) and P = 100. Answer the following questions about this: (a) If the money supply is M s= $5, 000, if P = 100 is the equilibrium price level, find Y (real output).

The supply of credit cards is given by q = 1
400X, where X are real credit card balances, q is
the real price of the credit card balance. You also know that R = 0.05 (nominal interest rate)
and P = 100. Answer the following questions about this:
(a) If the money supply is M s= $5, 000, if P = 100 is the equilibrium price level, find Y (real
output).
(b) Suppose that the Federal Reserve Bank decides to increase the money supply by 10%.
How much is the inflation rate as a result? Explain and justify your answer.

(c) Further suppose that at the same time, real output, Y , increases by 10%. Now what is
the inflation rate? Does our quantity theory of money hold here?

Note:-

• Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
• Answer completely.
• You will get up vote for sure.