Real money balances are defined as M/P. This name should make sense as it is analogous...
Homework Answers
MV=PY (from quantity theory of money)
where, M=money supply, V=velocity of money, P=price level, Y=GDP
Now, Percentage change in M+Percentage change in V=Percentage change in P+Percentage change in Y
or, Percentage change in M = Percentage change in P+Percentage change in Y - Percentage change in V
or, Percentage change in M = 4+8-0 = 12%
Then, percentage change in real money balances(M/P) = Percentage change in M/Percentage change in P = 12%/4% = 3%
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