(Answered) Assume output y and the real interest rate r are determined

Management Studies

Assume output Y and the real interest rate r are determined exogenously, and demand for real money balances is given by (M/P )d = L (i, Y ). Suppose some new technology arrives that causes people to expect Y to rise next year (with no change in Y this year). Suppose also that the central bank is expected to keep the money supply M unchanged both this year and next year. What will happen to the current price level P (and why)?

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