Question: Y7 QUESTION: On the Tobin graphs (using different colour pens), show: (1) the overall change in (the portfolio weight on bonds) that would arise from

QUESTION: On the Tobin graphs (using different colour pens), show:

(1) the overall change in (the portfolio weight on bonds) that would arise from a decrease in money risk, everything else constant

(2) Explain the intuition behind your answer.

(3) Show what the result looks like in the 3-sector model.

Assume, im = 0 and that om is always less than the b. The first stage in the problem is getting the shifts right at the individual level and checking how WE and SE affect . The market effects enter in the second stage. Don't forget that the problem starts from positive money risk.

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