Real money demand $($i$.$e$.,$the demand for purchasing power$)$is given by M over P equals fraction numerator Y over denominator $3$i end fraction, where M is the quantity of money, P is the price level, Y is output, and i is the nominal interest rate. AT THE BEGINNING OF THE YEAR, both borrowers and lenders expected inflation to be $3\%.$DURING the year, money supply increased by $3\%,$output increased by $1\mathrm{.}5\%,$and the nominal interest rate increased by $2\mathrm{.}5\%.$