Money demand in an economy in which no interest is paid on money is
Md/P = 500 + 0.2Y - 1000i
(a) Suppose that P = 100, Y = 1000, and i = 0.10. Find real money demand, nominal money demand, and velocity.
(b) Assuming that the money demand function as written holds, show how velocity is affected by an increase in real income, by an increase in the nominal interest rate, and by an increase in the price level.