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In Freedonia the real demand for money is d = (M/P)d = L(i,Y) = Y/(5i1/3 ),...

In Freedonia the real demand for money is d = (M/P)d = L(i,Y) = Y/(5i1/3 ), i being the nominal interest rate.

(a) What is the income velocity of money in Freedonia?

(b) Suppose output is growing at the annual rate of g. What is the growth rate of real money demand?

(c) If the nominal interest rate is constant, what is the growth rate of velocity?

(d) Suppose at time 1 there is a permanent increase in i. What happens to the time 1 income velocity of money? What happens to the time 1 price level as a result of this change?

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