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# Money demand function

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Suppose that a person’s yearly income is \$60,000. Also suppose that 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 this person’s money demand function is given by Md = \$Y (0.35 ! i)•a. This person’s demand for money when the interest…

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