The money demand function (M/P)°=L(i,Y) L(r+πe,Y) When people are deciding whether to hold money or bonds,they don't know what inflation will turn out to be. Hence,the nominal interest rate relevant for money demand isr+me. CHAPTER 7 Money and Inflation slide 34CHAPTER 7 Money and Inflation slide 34 The money demand function When people are deciding whether to hold money or bonds, they don’t know what inflation will turn out to be. Hence, the nominal interest rate relevant for money demand is r +  e . ( ) ( , ) M P L i Y d = ( , ) e = L r +  Y