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Assume that the demand for real money balance (M / P) is M / P = 0.4Y - 100i, where Y is national income, and
Assume that the demand for real money balance (M / P) is M / P = 0.4Y - 100i, where Y is national income, and i is the nominal interest rate (in percent). The real interest rate r is fixed at 7 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. If Y is 3,000, P is 2, and the growth rate of nominal money is 4 percent, what must i and M be?
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