Macroeconomics 5th Edition by Olivier Blanchard

Exercise 2

Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.
Suppose that a person's yearly income is $60,000. Also suppose that this person's money demand function is given by
M d = $Y (.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