Assume that the demand for real money balance (M/P) is M/P=0.6Y-100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. Identify d(M/P)/di. What does this mean?
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Brooklyn BUSN 7220 – Assume that the demand for real