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What is the demand for money

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Reference no: EM132655819

Suppose the country's annual income is € 50,000 billion.Also assume that the money demand function is given as: Md= € (0.2 - 0.8 )

a) What is the demand for money when the interest rate is 1% and when it is 5%? Explain how the interest rate affects the demand for money and why.

b) Assume that the interest rate is 5%.On a percentage basis, what happens to the demand for money if annual income falls by 20%? How does your answer change if we assume that the interest rate is 1%. Use the diagram below to explain your answer.

Reference no: EM132655819

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