Assume the real money demand function is: L(Y,i) =700+ 0.1Y = 5000i where Y is real output, Pis the price level, i is the nominal interest rate on non-monetary assets, and monetary assets earn no interest. Assuming that the asset market is in equilibrium at r = 0.05. A) Find equilibrium levels of the real money supply, the nominal money supply, and the velocity of money if P=2, = 2000, and =" = 0.05 B) Find the real income elasticity of money demand at the equilibrium level of money balances found in part a. C) The rate of inflation in this economy is defined as the growth rate of the nominal money supply minus an adjustment for the growth rate of real money demand arising from growth in the real output: AM AY A= = Ny M Y Assume that real income is expected to grow by 8% over the next year, the interest rate remains constant, and the income elasticity of real money demand equals the value found in part b. Find out how much the central bank should increase the money supply if it pursues an inflation target of zero inflation for the next year. Also, find the new level of money supply in this economy. D) Does the quantity theory of money hold in this economy? State your reason by considering the new level of nominal money supply in part . and given that P= 2, and = 2000 E) Now suppose the central bank follows a money supply rule. In particular, it sets the nominal money supply according to: M* = 1000 + 0.2Y- 4000 If expected inflation equals actual inflation and = = =" = 0.05, = 2000, and r = 0.05, calculate the price level in this economy