Reference no: EM13504114

If the nominal money supply grows 10%, the inflation rate is 6%, and the income elasticity of money demand is 1.0, then real income growth equals
A) 1%.
B) 2%.
C) 3%.
D) 4%.
Answer: D
) If the interest elasticity of money demand is -0.1, by what percent does money demand change if the nominal interest rate rises from 2% to 3%?
A) -0.1%
B) 5%
C) 0%
D) -5%
Answer: D
If the income elasticity of money demand is 3/4 and the interest elasticity of money demand is -1/4, by what percent does money demand rise if income rises 10% and the nominal interest rate rises from 4% to 5%?
A) 7.50%
B) 6.25%
C) 5.00%
D) 1.25%
Answer: D
Mr. Pierpont has wealth of $200,000. He wants to keep at least $80,000 in bonds at all times, and will shift $10,000 into bonds from his checking account for each percentage point that the interest rate on bonds exceeds the interest rate on his checking account. If the interest rate on checking accounts is 4% and the interest rate on bonds is 9%, how much does Mr. Pierpont keep in his checking account?
A) $50,000
B) $70,000
C) $130,000
D) $150,000
Answer: B
) Mr. Pierpont has wealth of $200,000. He wants to keep at least $80,000 in bonds at all times, and will shift $10,000 into bonds from his checking account for each percentage point that the interest rate on bonds exceeds the interest rate on his checking account. Currently, he keeps $100,000 in bonds, which pay him 7%. What is the current interest rate on checking accounts?
A) 5%
B) 7%
C) 9%
D) 10%
Answer: A