Standard money demand function used by macroeconomists

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A standard ’money demand’ function used by macroeconomists has the form ln(m) = β0 +β1 ln(GDP)+β2R, where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent year. Suppose β1 = 1.5 β2 = −0.04. What will happen to m if GDP increases by 1% (R is held constant)? What will happen to m if the interest rate increases from 3% to 4% (GDP is held constant)?

Reference no: EM131007752

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