The demand for money in the United States for the period 1929 – 1952 has been es

Question

The demand for money in the United States for the period 1929 – 1952 has been estimated as MD = 0.14Y + 76.03(r-2)-0.84, r >2, where Y is the annual national income, and r is the rate of interest measured in percent per year.

A)  Find the derivatives of this function M(Y, r) with respect to Y and r and discuss their signs.   

B) Consider the utility function U=x.y to be maximized subject to x+3y = 24. Find the stationary values of x*and y* at which utility is maximized. Also, find and interpret the value of *obtained.

PLEASE I NEED HELP TO SOLVE THIS QUSTION PLESE SHOW ME YOUR ANSWERS STEP BY STEP

Explanation / Answer

A)

MD(Y, r) = 0.14Y + 76.03(r-2)-0.84

dMD/dY = 0.14

dMD/dr = 76.03*-0.84*(r-2)^-1.84 = -63.87(r-2)^-1.84

the derivative of MD wrt Y is positive,, as Y incraeses money demand increases.

As r incraeses MD falls because people want to spend less and save more.

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