Question: consider a money demand function that takes the form mpd...
Consider a money demand function that takes the form (M/P)^d = Y/3i, where M is the quantity of money, P is the price lelve, Y is real output, and i is the nominal interest rate (measured in percentage points.)
a) If the economy is growing g% per year and velocity is growing twice as fast what are the growth rates in real money balances and the interest rate?
b) Supposing the money supply is growing at 3% per year, what values of g indicate inflation? Deflation?
I am struggling with these questions. Could you please answer the following questions. Thank you