Suppose that money supply and money demand determine the price
level (P) in an economy. As shown in the equation below, in
equilibrium, money demand equals to money supply. M/P = L(r+Eπ,Y).
where M is the quantity of money, P is the price level, r is the
real interest rate, Eπ is the expected inflation, and Y is the
national income.
a. Does the real money demand positively or negatively depend on
nominal interest rate, i = r + Eπ?...