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Suppose you estimate with econometric tools (from ECON 3341 and 3342) the following demand for money for the U.S: (M2/P) = a + b (RGDP)

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Suppose you estimate with econometric tools (from ECON 3341 and 3342) the following demand for money for the U.S: (M2/P) = a + b (RGDP) + c (13m) + error, where: M2 is broad money (the M stock shown above), P is the CPI price level, RGDP = GDP/P, and i3 is the 3-month T-bill interest rate. Please discuss the (theoretical) expected signs of b and c in the linear demand function above, using economic theory. What do these coefficients mean? For the items below, answer in the following way: "If x series moves up, series y (M2/P) will move up (or down) by this much." a. Suppose b is estimated with U.S. data at 0.50. How could you interpret this coefficient economically? Why? [1 pt.] b. Suppose c is estimated with U.S. data at -0.10. How could you interpret this coefficient economically? [1 pt.] c. Suppose you expand the Md function above for another series of those listed in Summary 9 of Chapter 7, such as Efficiency of payments technologies (availability of ATMs). What would you expect on this new coefficient d added to the Md function? [2 pts.]

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