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eco202 assignment 4 and self-generated solutions.pdf

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Masoud Anjomshoa

Assignment 4Olivier Blanchard David Johnson MacroeconomicsChapter 4 Questions 1 to 78da Suppose money demand is given by MY 025iShow and explain how does the demand for money change due to introduction and popularization of the internet banking in this economyb Explain after the innovation in part a which one of the following functions can characterize the demand for money Whyddd32iMY052iiiMY 025i2MY 025iSolution set4 Disclaimer These solutions are just guidelines for you and may NOT include a complete solution for the questions and problems in your homework as you must present in your assignments andor examsIn your solutions you must show your work and demonstrate your line of thinking clearlyPlease always check my calculations for unintentional typos or miscalculations Chapter 4 Q1a FalseIncome is a flow variable while wealth is a stock variableb FalseChanges in interest rate can change the opportunity cost of holding money so the demand for money c If the total wealth and demand for money are known then the difference would determine the demand for bondsdTrueThey can increase the money velocity See the example belowe FalseThese two move in opposite directionsBecause Li is an decreasing function in i YM 1Li fFalseSelling bonds by central bank leads to lower money supplygPrice of bonds and interest rate always move in opposite direction Chapter 4 Q2a ddi 5 Y60000M60000035005M18000 demand for bond5000018000 32000ddi 10 Y60000M6000003501 M15000 demand for bond5000015000 35000bAs interest rate goes up demand for money goes down because income is fixed and transaction demand for money remains the same thus there would be only an upward changein portfolio demand for moneySo the demand for bond goes upc
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