Suppose the income elasticity of money demand is 0.75 and the interest elasticity of money demand is -0.2. By what percentage does real money demand change in each of the following circumstances? a. Income rises 2%. b. The interest rate rises from 4% to 5%. c. Income falls 4%. d. The interest rate falls from 6% to 4%.
Suppose the income elasticity of money demand is 0.75 and the interest elasticity of money demand is -0.2. By what percentage does real money demand change in each of the following circumstances? a. Income rises 2%. b. The interest rate rises from 4% to 5%. c. Income falls 4%. d. The interest rate falls from 6% to 4%.
Chapter13: Monetary Policy
Section: Chapter Questions
Problem 6E
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Transcribed Image Text:Suppose the income elasticity of money demand is 0.75 and the interest elasticity of money
demand is -0.2. By what percentage does real money demand change in each of the following
circumstances?
a. Income rises 2%.
b. The interest rate rises from 4% to 5%.
c. Income falls 4%.
d. The interest rate falls from 6% to 4%.
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