Explain how will the level of the velocity of money change

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Consider a money demand function that takes the form (M/P)d = Y/3i, where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate (measured in percentage points).

a. What is the velocity of money if the nominal interest rate is constant?

b. Explain how will the level of the velocity of money change if there is a permanent (one time) increase in the nominal interest rate, holding other factors constant?

Reference no: EM1354682

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