Suppose that consumption depends on the level of real money balances (on the grounds that real money

Question:

Suppose that consumption depends on the level of real money balances (on the grounds that real money balances are part of wealth). Show that if real money balances depend on the nominal interest rate, then an increase in the rate of money growth affects consumption, investment, and the real interest rate. Does the nominal interest rate adjust more than one-for-one or less than one-for-one to expected inflation? This deviation from the classical dichotomy and the is called the Mundell–Tobin effect. How might you decide whether the Mundell–Tobin effect is important in practice? Fisher Effect
The Fisher Effect is an economic theory created by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates. The Fisher Effect states that the real interest rate equals the nominal interest...