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 we know that the interest elasticity is:
Note
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 we know that the interest elasticity is Very inelastic.