Consider the following demand and supply model for money: Demand for money; M+d=B0+ BY++ B R++...

 

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Consider the following demand and supply model for money: Demand for money; M+d=B0+ B₁Y++ B₂ R++ B3P++U₁t Supply of money; M+S=do+ α₁Ytt+U2t Where M= Money, Y-Income, R= Rate of interest, P= Price and U's error terms Assume that R and P are exogenous and M and Y are endogenous. = i. Is the Demand function identified? ii. Is the supply function identified? iii. Obtain the expressions for the reduced form equations for M and Y iv. Apply the test of simultaneity to the supply function v. How would we find out if Y in the money supply function is in fact endogenous? Consider the following demand and supply model for money: Demand for money; M+d=B0+ B₁Y++ B₂ R++ B3P++U₁t Supply of money; M+S=do+ α₁Ytt+U2t Where M= Money, Y-Income, R= Rate of interest, P= Price and U's error terms Assume that R and P are exogenous and M and Y are endogenous. = i. Is the Demand function identified? ii. Is the supply function identified? iii. Obtain the expressions for the reduced form equations for M and Y iv. Apply the test of simultaneity to the supply function v. How would we find out if Y in the money supply function is in fact endogenous?

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Is the Demand function identified The demand function is not identified because there is no exogenous source of variation for the money demand equatio... View the full answer