ECO473 Money amp Banking Dr D Foster Spring 2019 Money Demand Worksheet Answers Worksheet 1 Using the Cambridge model 1 If k10 what is m d if income is 10000 2 If k10 what is m ID: 762218
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ECO473 – Money & BankingDr. D. Foster – Spring 2019 Money Demand Worksheet Answers
Worksheet #1 Using the Cambridge model … 1. If k=10%, what is m d if income is $10,000?2. If k=10%, what is md if income is $20,000?3. If y=$20,000 and prices rise 50%, what is md? Md?4. If k rises to 12%, what is md if income is $15,000? 1. md = (.10) * ($10,000) = $1,0002. md = (.10) * ($20,000) = $2,0003. md = $2,000 (no effect); Md = $3,0004. md = (.12) * ($15,000) = $1,800 Show graphically.
Worksheet #1
Worksheet #2 You are paid $50,000 per year in equal amounts every 3 months. You have $5,000 permanently saved in a checking account. You pay taxes of 7.4% on your income each pay period. You allocate $2,000 per pay period to the purchase of bonds. The remainder of your income you spend in equal increments per day over the pay period . 1. What is m d? Show the graph.2. If taxes rise to 9.5%, what is md? Show the graph.3. If you decrease bonds to $1500, what is md? Show the graph. 1. m d = (.5)*[(50,000/4)*(.926)- 2,000]+5,000 = $9,788 2. m d = (.5)*[(50,000/4)*(. 905)- 2,000]+5,000 = $ 9,656 3. m d = (.5)*[(50,000/4)*(.926 )- 1,500]+5,000 = $10,038
Worksheet #2
Worksheet #2
Worksheet #2
Worksheet #3 Suppose that bonds earn 5% per year and that the fixed fee to convert bonds to money is $10 (no matter how much is converted). Assume real income is $65,000 per year. Find n from: f*n = (1/2)*y*r/n … n = sqrt [(1/2)*y*r/f]1. n = 12.75; md = (1/2)*(y/n) = $2,5492. n = 11.51; md = $2,3023. n = 8.06; md = $4,0314. n = 9.87; md = $3,2915. n = 15.08; md = $2,155 1. What is n? What is m d ? 2. If income falls to $53,000, what is n & m d ? 3. If the fee rises to $25, what is n & m d ? 4. If bond interest falls to 3%, what is n & m d ? 5. If bond interest rises to 7%, what is n & m d ?
ECO473 – Money & BankingDr. D. Foster – Spring 2019 Money Demand Worksheet Answers