Suppose that a person\'s yearly income is $75,000. Also, suppose that this perso

Question

Suppose that a person's yearly income is $75,000. Also, suppose that this person's money demand function is given by M^d = SY(0.45 - i). This penon's demand for money when the interest rate is 10% is $. This person's demand for money when the interest rate is 15% is $. Which of the following statements correctly describes the relationship between interests rates and the demand for money? When the interest rate increases, the demand for money decreases because interest paying bonds become less attractive than money balance. Ob When the interest rate increases, the demand for money decreases because interest paying bonds become more attractive than money balance. 1 0C when the interest rate increases, the demand for money increases because interest paying bonds become less attractive than money balance. When the interest rate increases, the demand for money increases because stocks and bonds become more risky.

Explanation / Answer

Md=75000*(0.45-0.10)= 75000*(0.35)= $26250

Md= 75000*(0.45-0.15)=75000*0.30= $22500

Option B

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