**1. ** Write the quantity equation and explain it.

**2. ** What does the assumption of constant velocity imply?

**3. ** Who pays the inflation tax?

**4. ** If inflation rises from 6 to 8 percent, what happens to real and nominal interest rates according to the Fisher effect?

**5. ** List all the costs of inflation you can think of, and rank them according to how important you think they are.

**6. ** Explain the roles of monetary and fiscal policy in causing and ending hyperinflations.

**7. ** Define the terms *real variable* and *nominal variable*, and give an example of each.