Suppose you are given the following information:

Real money demand function: L(i, Y) = 0.25Y - 200i

Output: Y = 8000

Money supply: MS = 3200

a)If the equilibrium real interest rate (r) is fixed at 4% and expected inflation is 2%, then the real money balance is 800." True/False/Uncertain, explain.

b)Find the level of (nominal) money supply if the central bank wants to keep the price level to 5. What happens to the real money balance? Explain.