A Study Has Estimated the Effect of Changes in Interest

question 101

Multiple Choice

A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: lnM = 14.666 + .021 lnC - 0.036 lnr, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank deposits.Based on this study, a 5% increase in interest rates will cause the demand for money to:

• A)drop by 1.8%.
• B)increase by 1.8%.
• C)drop by.18%.
• D)increase by.18%.

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