5. Consider an economy with a constant nominal money supply, a constant level of real output Y = 100, and a constant real interest rate r= 0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -Q.1.

a. By what percentage does the equilibrium price level differ from its initial value if output increases to Y = 106 (and r remains at 0.10)? (Hint: Use Eq. 7.11.)

b. By what percentage does the equilibrium price level differ from its initial value if the real interest increases to r= 0.11 (and Y remains at 100)?

c. Suppose that the real interest rate increases to r= 0.11. What would real output have to be for the equilibrium price level to remain at its initial value?