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Assume that the demand for real money balance ( M / P ) is M / P = 0.8 Y - 200 i , where
Assume that the demand for real money balance (M / P) is M / P = 0.8Y - 200i, where Y is national income, and i is the nominal interest rate (in percent). The real interest rate r is fixed at 5 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth.If Y is 2,500, P is 1.2, and the growth rate of nominal money is 2 percent, what must i and M be?Show all your work, show formula used and explain why.
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