CHAPTER 21 Suppose that the demand for money is given by log a M b * a + bi + log Y P where M is nominal balances, P the price level, i the nominal interest rate, and Y is real income a and b are parameters For given values of i and Y, state whether the following statements are true, false, or uncertain a An agricultural society has lower real money demand than an industrial society b Real money demand is higher in dictatorships than in democracies CANSIM Questions Refer to Figure 21-1 on page 555 Get the quarterly CANSIM data from 1968 to 2009 for the real GDP (series V41707150), GDP deflator (series V1997756), and M2 (gross; series V41552801) from the Textbook Resources area of the MyEconLab a Compute the velocity of money (don't forget to calculate the nominal GDP!), plot this series, and comment on its long-term behaviour The Demand for Money 571 b Compare the calculated velocity of money to its level in 2005 Has it risen or fallen? Suggest reasons for its change since that time 10 Get the quarterly data from 1962 to 2009 on real GDP (CANSIM series 41707150), the GDP deflator (series V1997756), the monetary base (series V37145), and the three-month T-Bill rate (series V122531) from the Textbook Resources area of the MyEconLab Run a regression of real money balances on a constant real GDP and the nominal interest rate a Comment on the fit of the regression b What is the estimated income elasticity of the demand for real money balances? What is the estimated interest rate elasticity? c Are your estimates in (b) statistically significant? d Is your evidence consistent with the BaumolTobin model or with the quantity theory of money? e Is the money demand relationship stable? WEB EXERCISE John Maynard Keynes is among the most well known of early economic theorists Go to http://en.wikipedia.org/wiki/John_Maynard_ Keynes and write a one-page summary of his life and contributions Be sure to visit the MyEconLab website at www.myeconlab.com.This online homework and tutorial system puts you in control of your own learning with study and practice tools directly correlated to this chapter content On the MyEconLab website you will find the following appendices for this chapter: Appendix 21.1: A MathematicalTreatment of the Baumol-Tobin and Tobin Mean Variance Models Appendix 21.2: Empirical Evidence on the Demand for Money