Suppose that a person\'s yearly income is $80,000. Also, suppose that this perso

Question

Suppose that a person's yearly income is $80,000. Also, suppose that this person's money demand function is given by M^d = $Y(0.35 - i). Suppose that the interest rate is 10%; The percentage change in this person's demand for money if her yearly income falls by 50% is [50|%. Suppose that the interest rate is 5%. The percentage change in this person's dema d for money if her yearly income falls by 50% is [50]%. Which of he following statements best describes the effect of income on the demand for money? Changes in income do not impact demand for money. Any decrease (or increase) in income leads to a less than proportional increase in demand for money is high. Any decrease (or increase) in income leads to a more than proportional increase in the demand for oney is low. Any decrease (or increase) in income leads to a proportional increase in the demand for money regardless of the interest rate.

Explanation / Answer

The above estimations show that there is a proportional relationship between the income and the demand for money as the answer in above cases in 50 per cent which is equal to the percentage change in the income level regardless of the interest rate.

Thus, option D.

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