question archive Suppose that wealth of a person is $50,000 and that her yearly income is $60,000 ($Y)
Suppose that wealth of a person is $50,000 and that her yearly income is $60,000 ($Y)
Subject:EconomicsPrice: Bought3
Suppose that wealth of a person is $50,000 and that her yearly income is $60,000 ($Y). Also, suppose that her money demand function is given by Md = $Y(0.35 – i)
a. If we assume that she has two options to put her $50,000 wealth, buy bonds or keep it as money (Md). What will be her demand for bond, if i=10%=0.1. Hint: calculate her demand for money, then remaining of her wealth will be the demand for bond.
b. What are the effects of an increase in income ($Y) on her demand for money and her demand for bonds?
