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Posted on Jul 02, 2024

There are 2 equations: 1) M d ( Y , r ) = M 0 + M 1 Y M 2 r 2) M d

There are 2 equations:

1) Md(Y,r)=M0+M1YM2r

2) Md=M/P

where M and P are exogenous variable and M0,M1,M2>0 and Md is money / liquidity demand in the economy.

My question is why are M1 and M2 both positive?

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