When Money supply decreases permanently, we know that price level also decreases by the Quantity Theory of Money and
According to fisher effect and Liquidity preference theory framework, which is MS=L * ( i , Y), we know that nominal interest rate goes up, which leads to an increase in money demand.
My question is, by how much does the price level decreases and Money demand increases when MS falls?
Do we have one for one relationship among them or less than one for one?
I want to know the magnitude of each change as a result of change in money supply.
Please provide detail reasons with sufficient explanations.
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