4. Suppose that the money demand function takes the form: (M/P)d=L(i,Y)=Y/10i. (a) Provide economic intuition on...

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4. Suppose that the money demand function takes the form: (M/P)d=L(i,Y)=Y/10i. (a) Provide economic intuition on the functional form of the real money demand function. (b) If output grows at rate g and the nominal interest rate is constant, at what rate will the demand for real balances grow? (c) What is the velocity of money in this economy? (d) If inflation and nominal interest rates are constant, what rate will velocity grow? (e) If the central bank wants to achieve a long-run target inflation rate of 7, at what rate should the money supply grow? 4. Suppose that the money demand function takes the form: (M/P)d=L(i,Y)=Y/10i. (a) Provide economic intuition on the functional form of the real money demand function. (b) If output grows at rate g and the nominal interest rate is constant, at what rate will the demand for real balances grow? (c) What is the velocity of money in this economy? (d) If inflation and nominal interest rates are constant, what rate will velocity grow? (e) If the central bank wants to achieve a long-run target inflation rate of 7, at what rate should the money supply grow? 4. Suppose that the money demand function takes the form: (M/P)d=L(i,Y)=Y/10i. (a) Provide economic intuition on the functional form of the real money demand function. (b) If output grows at rate g and the nominal interest rate is constant, at what rate will the demand for real balances grow? (c) What is the velocity of money in this economy? (d) If inflation and nominal interest rates are constant, what rate will velocity grow? (e) If the central bank wants to achieve a long-run target inflation rate of 7, at what rate should the money supply grow? 4. Suppose that the money demand function takes the form: (M/P)d=L(i,Y)=Y/10i. (a) Provide economic intuition on the functional form of the real money demand function. (b) If output grows at rate g and the nominal interest rate is constant, at what rate will the demand for real balances grow? (c) What is the velocity of money in this economy? (d) If inflation and nominal interest rates are constant, what rate will velocity grow? (e) If the central bank wants to achieve a long-run target inflation rate of 7, at what rate should the money supply grow?