You are given the followving money demand finction 13 Which

You are given the followving money demand finction 13. Which of the following statements is TRUE about money demand function? and measure income and interest elasticities, respectively. b, a, while measures income elasticity of money demand, measures semi-interest elasticity Money demand theory postulate that a>0; >0 and

Solution

13 answer is C. The reason is money is demanded even when there is zero income and interest rate and hence a>0.MONEY DEMAND VARIES POSITIVELY WITH INCOME B>0 AND VARIES NEGATIVELY WITH INTEREST Y>0.

14 Answer is e. A is not true as it is independent variable and not dependent variable (which can be deterministic.)