MGEB06 Mathematical Approach
Mathematical Approach
MGEB06 Assignment
MGEB06 – All Sections
Macroeconomic Theory and Policy: A Mathematical Approach
Assignment 2
Due: On or before Monday, December 5th 2022 (no later than 11:45 pm)
The table below should be the cover page of each question submitted for your assignment.
Group members: Student number
1
2
3
4
5
Instructions:
You can submit an individual or group assignment. If you submit a group assignment,
there must be no more than FIVE students in your group (coming from any one of the
sections of MGEB06 this term) and you must submit ONE copy.
A PENALTY OF 10% OF THE TOTAL MARKS will be imposed if you FAIL TO DO THE
FOLLOWING: Submit the filled-in table as your cover page (for EACH answer uploaded)
Label your graph(s); otherwise, marks will be subtracted.
No credit will be given if you do not show your work (i.e., don’t simply say the answer is
3 write down enough of the steps you used to arrive at this answer).
Your answer should be structured in a way such that those that know little about
economics will have no difficulty understanding your argument/answer.
DO NOT USE any notations that are not used in lectures. If you use your own notations
and/or abbreviations that are not being used in lectures, you will receive a grade of zero
for that question.
MGEB06 Assignment 2 (Fall 2022) 2
Question 1 (20 points) – Chapters 4 & 5
Assume the real money demand of an economy is:
ெ
= 2×Yβ(r + πe)-α
where 0 < β < 1 and 0 < α < 1.
a) Use the real money demand above to determine the velocity of money.
b) Does the quantity theory of money hold in this economy? Explain.
c) Show with calculus how the velocity of money reacts to a change in output and a change
in the nominal interest rate.
d) Find the income and the nominal interest rate elasticities of money demand.