What are the effects of an increase in wealth on the demand

Question

Problem

Suppose that a person's wealth is $50,000 and that her yearly income is $60,000. Also suppose that her money demand function is given by

M^d = $Y (.35 - 1)

a. Derive the demand for bonds. Suppose the interest rate increases by 10 percentage points. What is the effect on the demand for bonds?

b. What are the effects of an increase in wealth on the demand for money and the demand for bonds? Explain in words.

c. What are the effects of an increase in income on the demand for money and the demand for bonds? Explain in words.

d. Consider the statement "When people earn more money, they obviously will hold more bonds." What is wrong with this statement?

The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.