Chapter 11.4, Problem 97E

Money Stock Exercises 97–100 are based on the following demand function for money (taken from a question on the GRE Economics Test):

$M_d=2\times y^{0.6}\times r^{-0.3}\times p,$

Where

$M_d=$ demand for nominal money balances (money stock

$y=$ real income

$r=$ an index of interest rates

$p=$ an index of prices. These exercises also use the idea of percentage rate of growth:

Percentage rate of growth of M $=\frac{\text{Rate of growth in }M}{M}$

$=\frac{dM/dt}{M}.$

(From the GRE Economics Test) If the interest rate and price level are to remain constant while real income grows at 5% per year, the money stock must grow at what percent per year?