Suppose that the real money demand function is: L(Y, r + pie^e) = 0.01Y/r + pie^e

Where Y is real output, r is the real interest rate, and pie^e is the expected rate of Inflation. Real output is constant over time at Y = 150. The real interest date is fixed in the goods market at r = 0.05 per year.

a. Suppose that the nominal money supply is growing at the rate of 10% per year and that this growth rate is expected to persist forever. Currently, the nominal money supply is M = 300. What are the values of the real money supply and the current price level?

b.Suppose that the nominal money supply is M = 300. The central bank announces that from now on the nominal money supply will grow at the rate of 5% per year. What are the values of the real money supply and the current price level, if all markets are in equilibrium? Explain the effects on the real money supply and current price level of a slowdown in the rate of money growth.