Real money demand (i.e., the demand for purchasing power) is given by(M/P) = Y/8i, whereMis the quantity of money,Pis the price level,Yis output, andiis the nominal interest rate. AT THE BEGINNING OF THE YEAR, both borrowers and lenders expected inflation to be 4%. DURING the year, money supply increased by 6%, output increased by 5%, and the nominal interest rate increased by 2%.

(a) How much was the percentage change in money velocity?

(b) Calculate the actual inflation rate.

(c) Is it true that purchasing power was transferred from borrowers to lenders?