Suppose that a person's wealth is $50,000 and that her yearly income is $60,000. Also suppose that her money demand function is given by: M = $60,000(0.40– i) Calculate the demand function for bonds, B. Suppose the interest rate increases by 10 percentage points. As a result, the demand for bonds O A. remains unchanged. OB. decreases by 30%. O C. increases by $6,000. O D. decreases by $6,000. In view of the above demand functions for money and bonds, one can conclude that an increase in wealth increases O A. both the demand for money and the demand for bonds. O B. the demand for bonds but has no effect on the demand for money.

Suppose that a person's wealth is $50,000 and that her yearly income is $60,000. Also suppose that her money demand function is given by: M = $60,000(0.40– i) Calculate the demand function for bonds, B. Suppose the interest rate increases by 10 percentage points. As a result, the demand for bonds O A. remains unchanged. OB. decreases by 30%. O C. increases by $6,000. O D. decreases by $6,000. In view of the above demand functions for money and bonds, one can conclude that an increase in wealth increases O A. both the demand for money and the demand for bonds. O B. the demand for bonds but has no effect on the demand for money.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose that a person's wealth is $50,000 and that her yearly income is $60,000. Also suppose that her money demand function is given by:
M = $60,000(0.40 – i)
Calculate the demand function for bonds, B.
B =
Suppose the interest rate increases by 10 percentage points.
As a result, the demand for bonds
O A. remains unchanged.
OB. decreases by 30%.
O C. increases by $6,000.
O D. decreases by $6,000.
In view of the above demand functions for money and bonds, one can conclude that an increase in wealth increases
O A. both the demand for money and the demand for bonds.
O B. the demand for bonds but has no effect on the demand for money.
O C. the demand for money but has no effect on the demand for bonds.
O D. the demand for bonds but decreases the demand for money.

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