Exercises 61 and 62 are based on the following demand function for money (taken from a question on the GRE Economics Test): M d = ( 2 ) × ( y ) 0.6 × ( r ) − 0.3 × ( 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. Money Stock If real income grows while the money stock and the price level remain constant, the interest rate must change at what rate? (First find d r / d y , then find d r / d t ; your answers will be expressed in terms of r , y , and d y / d t .)
Exercises 61 and 62 are based on the following demand function for money (taken from a question on the GRE Economics Test): M d = ( 2 ) × ( y ) 0.6 × ( r ) − 0.3 × ( 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. Money Stock If real income grows while the money stock and the price level remain constant, the interest rate must change at what rate? (First find d r / d y , then find d r / d t ; your answers will be expressed in terms of r , y , and d y / d t .)
Solution Summary: The author calculates the rate at which the interest rate changes when the real income increases although the money stock and the price level remain fixed.
Exercises 61 and 62 are based on the following demand function for money (taken from a question on the GRE Economics Test):
M
d
=
(
2
)
×
(
y
)
0.6
×
(
r
)
−
0.3
×
(
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.
Money Stock If real income grows while the money stock and the price level remain constant, the interest rate must change at what rate? (First find
d
r
/
d
y
, then find
d
r
/
d
t
; your answers will be expressed in terms of r, y, and
d
y
/
d
t
.)
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