a. Derive a demand function for real money balances from the above quantity equation. Provide an economic intuition for that money demand expression.

b. Now consider the following version of the quantity theory:

M V(i) PY

where, now the velocity of money depends on the interest rate (i). Knowing that the relation between the demand for real money balances and the nominal interest rate is negative, what should be the relation between V and the nominal interest rate? Provide an economic explanation for your result.