Question

-(Advanced analysis) Assume the equation for the total demand for money is L = 0.4 Y + 80 − 4 i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $200 and the interest rate is 10 (percent), what amount of money will society want to hold?

-$200
-$320
-$120
-$160

Answer 1

To find out the amount of money that society wants to hold, we need to substitute the given values of Y and i into the equation for the total demand for money, which is L = 0.4Y + 80 - 4i.

Substituting Y = $200 and i = 10 in the equation, we get:

L = 0.4($200) + 80 - 4(10)

L = $80 + $80

L = $160

Therefore, society will want to hold $160 of money at a GDP of $200 and an interest rate of 10%.

So, the answer is -$160.