Interest rates-consumer confidence on demand for money

Reference no: EM13692693

A study has estimated the effect in interest rates and consumer confidence on the demand for money to be: ln M = 14.666 + .021 ln C - 0.036 ln r, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank deposits. Based on this study, 5% increase in interest rates will cause the demand for money to:

a. drop by 1.8%

b. increase by 1.8%

c. drop by .18%

d. increase by .18%

Reference no: EM13692693

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