Suppose that a person’s yearly income is $60,000. Also supposethat this person’s money demand function is given by
Md = $Y (0.35 ! i)•
a. What is this person’s demand for money when the interest rate is 5%?10%?
b. Explain how the interest rate affects money demand.
c. Suppose that the interest rate is 10%. In percentage terms, what happens to this person’s demand for money if her yearly income is reduced by 50%?
d. Suppose that the interest rate is 5%. In percentage terms, what happens to this person’s demand for money if her yearly income is reduced by 50%?•
e. Summarize the effect of income on money demand. In percentage terms,how does this effect depend on the interest rate?
**Short answer questions! No need an essay for these questions.
Suppose that a person’s yearly income is $60,000. Also suppose that thisperson’s money demand function is given byMd = $Y (0.35 ! i)•a. This person’s demand for money when the interest…
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