Calculate the Appropriate (Income or Interest)elasticity of Money Demand for Each

question 82

Essay

Calculate the appropriate (income or interest)elasticity of money demand for each of the following cases:
a.Income rises 2% while real money demand rises 1%
b.Interest rate rises from 4% to 5% while real money demand falls 1%
c.Income rises 3% and the interest rate rises from 5% to 6%,while real money demand rises 1% during one year;in another year,income falls 3.5%,the interest rate falls from 4% to 3%,while real money demand falls 1%

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Definitions:

AASB 110

The Australian Accounting Standards Board standard that provides the guidelines for the treatment of events after the reporting period, including their recognition and disclosure in financial statements.

Adjusting Event

An event occurring after the reporting period that provides additional evidence about conditions that existed at the end of the reporting period.

Non-Adjusting Event

An event that occurs after the reporting period that does not necessitate adjustments to the financial statements because it does not provide new information about conditions at the end of the reporting period.

Doubtful Debts Expense

An accounting concept referring to the provision a company makes to account for amounts it expects will not be collected from debtors.