When r = 4 percent, the quantity demanded of money equals $400. And when r =...

When r = 4 percent, the quantity demanded of money equals $400. And when r = 5 percent, the quantity demanded of money equals $350. Calculate the elasticity of money demand.

Expert Solution

Elasticity of money demand = ∆Q/∆r *(r1 + r2) / (Q1 + Q2)

= (350 - 400) / (5 - 4) * (4 + 5) / (400 + 350)

= (-50 / 1) * (9 / 750)

= -450 / 750

= -0.6

The absolute value of Elasticity of money demand is 0.6.

Rahul Sunny answered 2 years ago

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