Question
3. Assume that real money demand (M/P) is related to income as follows: (M/P)D = .04Y a. What is the velocity of money in this
3. Assume that real money demand (M/P) is related to income as follows:
(M/P)D = .04Y
a. What is the velocity of money in this case?
b. What would happen to the price level if people started holding five percent of their income in the form of money, rather than four percent (increase, decrease or no effect)? Explain.
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Using Econometrics A Practical Guide
Authors: A. H. Studenmund
7th edition
013418274X, 978-0134182742
