Answer to Question #55807 in Macroeconomics for Javarn Shaw

Question

Peter and Jane receive the same annual income, but Peter , who gets paid monthly, will have a much higher demand for active balances than Jane, who gets paid weekly.

a. Is this statement true ?
b. Justify your answer.

Answer 1

The statement is not true, because Peter and Jane receive the same annual income, but Peter gets paid monthly and will have a lower demand for active balances than Jane, who gets paid weekly, because she receive money earlier and more often and has possibility to reinvest money with higher gain.