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Question 5 The {nominal} money demand function of individuals is given as Md 2 $YL(:'], where $Y is nominal income [that is nominal GDP] and
Question 5 The {nominal} money demand function of individuals is given as Md 2 $YL(:'], where $Y is nominal income [that is nominal GDP] and L[-i} is a function of the interest rate. Suppose that the function L[-i] has mo components [without actually specifying a particular function here}: (1} a component that depends on the interest rate, just as we discussed in class and [2) a component that is independent of income and the interest rate. This second component says that individuals would like to hold a certain amount of many regardless of what the current interest rate is and what their current income is. Let's call this component the \"autonomous money demand\". Supp-om that individuals decide to increase their autonomous money demand. Assume an upward sloping LM curve. E. Use the 3graph method which we discussed in class to analyze the shortrun effects of this change in the behavior of individuals. Clearly label which graph represents the money market, the goods market and the ISLM model. Also label each axis, all curves and equilibrium outcomes clearly! h. For each of the shifts that you drew in your graph above, explain briey in words what causes the shift. That is, explain the mechanism behind the changes
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