Question

(1) In many cases, particularly instances of hyperinflation, we do not observe a stable demand for real money balances that is proportional to real output(i.e, MD/p LxY). Explain how we alter the simple monetary model to derive the general monetary model.

(2) Some apparently puzzling linkages between money, interest rates, and exchange rates. For example, an increase in the money supply typically leads to a weaker currency but sometimes this is accompanied by higher interest rates and sometimes with lower interest rates. How can we explain this apparent contradiction?