Assume that the economy’s real GDP is growing. What will happen to money demand over time? If the Fed leaves the money supply unchanged, what will happen to the interest rate over time? If the Fed changes the money supply to match the change in money demand, what will happen to the interest rate over time?

When the economy's real GDP is growing, it generally leads to an increase in money demand over time. This is because as the economy expands, there is typically higher consumption and investment spending, and more money is required to facilitate these transactions.

Now, let's consider the two scenarios:

1. If the Federal Reserve (Fed) leaves the money supply unchanged while money demand increases, the interest rate is likely to rise over time. This is due to an increased demand for money with a fixed supply. As more people and businesses demand money to finance their expanding economic activities, the limited supply of money may lead to higher interest rates.

2. If the Fed changes the money supply to match the change in money demand, then the interest rate can remain relatively stable over time. By adjusting the money supply to accommodate the growing money demand, the Fed aims to maintain equilibrium in the money market. This action helps to stabilize the interest rate by ensuring that there is neither an excess demand for money (which could cause interest rates to rise) nor a surplus supply of money (which could lead to interest rates falling).

In summary, when the economy's real GDP is growing, money demand generally increases. The response of the interest rate depends on whether the Fed adjusts the money supply to match the change in money demand or keeps it unchanged. Adjusting the money supply to match changes in money demand helps to maintain stability in the interest rate.