(Solved): Question 1: Money and Inflation (Midterm 2022) The Song dynasty is the last dynasty in Chinese hist ...

Question 1: Money and Inflation (Midterm 2022) The Song dynasty is the last dynasty in Chinese history that adopted copper currency as the major medium of exchange. Government mint copper coins. Unless mentioned explicitly, we assume that all the other things are being equal. 1.1. By 1165 , the copper mine was depleted and copper became scarce. How did the depletion of copper mines affect the price of copper as well as the return for holding copper currency? 1.2. Following question 1.1., how does such scarcity of copper affect people's demand for money (real and nominal) holding the amount of copper currency is fixed? 1.3. Due to the high quality of the copper currency issued in China, the nearby countries also use it as their currency. Once, a Japanese cargo arrived China and sold merchandise. The Japanese accepted the copper currency as the medium of exchange. How did this event affect the domestic money supply. Then, holding all the other things being equal (i.e., no factor affecting the real money demand), how does this event affect the price level in China by then? 1.4. Due to the exit of the government minted copper currency, the government want to mint more copper coins but ends up finding it difficult to get copper to mint coins. Therefore, the government started to mint coins mixed with copper and other materials, e.g., tin and lead. Since people only want to keep the high-quality copper currency, i.e., the one mint with $100\%$ copper, and get rid of the lower quality coins. If the nominal money supply is fixed, how did this event affect people's demand for money (real and nominal) as well as the price level?