Question: A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: log M = 14.666

A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: log M = 14.666 + .021 log C - .036 log r, where M denotes real money balance. C is an index of consumer confidence, and r is the interest rate paid on bank deposits. Based on this study,

1. 5% increase in interest rates will cause the demand for money to:

2. Based on this study we know that the interest elasticity is:

A. unitary.

B. zero.

C. very elastic.

D. very inelastic.

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