Interest rate elasticities of real cash balances

Assignment Help Business Economics

Reference no: EM1323163

Q. 1. Consider the subsequent simple demand function for funds:

Mt = βoYt β1 rt β2 et ut

Where Mt = cumulative real cash balances at time t, Yt = cumulative real national income at time t, rt = long-term interest rate also et = error term at time t.

Given the subsequent data:

a. Illustrate what are the real income also interest rate elasticities of real cash balances?
b. Are the preceding elasticities statistically significant personally?
c. Test the overall significance of the estimated regressions.
d. Is the income elasticity of demand for real cash balances significantly different from one?
e. Should the interest rate inconsistent be retained in the model? Why?

Reference no: EM1323163

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