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Increase in the public liquidity preference

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Reference no: EM131055052

Given the model Y = C + I + G + X - M; with C = a + bYd; Yd=Y-Tx, Tx=Txo;

G = Go; I = f (i...) but investment is NOT a function of income; X = Xo; with import function of M = Mo + mY. Assume a money demand function Md=Mt+Ml, with Mt=f(y) and Ml=f(i), and Ms=Mso. Now assume a significant increase in the public's liquidity preference. This would result in:

  • an increase in the level of income
  • a rightward shift of the LM curve
  • an increase in the level of imports
  • a decrease in the level of saving

Reference no: EM131055052

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