in case they live longer than expected or have large medical bills.Second,they may ant to leave eques s to their children,relatives,or charities,so again,they do no ssave all of their wealth during retirement. If the elderly who do not have children dissave at the same rate as the elderly who do have children this seems to imply that the reason for low dissaving is the precautionary motive the bequest motive is presumably stronger for people who have children than for those who don't.An altemative interpre children do t increase de red savin For example having children t on is tha bequest motive,but it may also lower the precautionary motive:you can rely on your children in case of financial emergency.Perhaps the two effects on saving cancel each other. 9Explain different between portfolio and transctions theories of money demand 9.Portfolio theories of money demand emphasize the role of money as a store of value These theories stress that people hold money in their portfolio because it offers a safe nominal return.Therefore,portfolio theories suggest that the demand for money ofm iportiolo as well as all the other eople hold wealth because wealth measures the overall size of the portfolio. In contrast transactions theories of money demand stress the role of money as a medium of exchange.These theories stress that people hold money in order to make purchases.The demand for money depends on the cost of holding money(the interes rate)and t山 e benefit(the ease of ma king trans sactions)Money deman ,therefore depends negatively on the interest rate and positively on income. 2.What are the four central disagreements in the debate over real business cycle theory? 2.There are four central disagreements in the debate over real business cycle theory These disagreements have not yet been settled,and,as a result,they remain areas of active research these areas are i.The interpretation of the labor market.Over the business cycle,the unemploy- ment rate v varies widely.Advocates of real business cycle theory believe that fluc tuations in employment result from changes in the amount people want to work by assumption the economy is always on the labor supply curve.They believe that unemployment statistics are difficult to interpret for at least two reasons:first, people may claim to be unemploved to collect unemployment-insurance benefits: second,the unemployed might be willing to work if they were offered the wage Critics think that fluc ment d not just that people want to work They believe that the hish nemployment years rate in recessions suggests that the labor market does not clear-that is,that the wage does not adjust to equilibrate labor supply and labor demand. ii.The importance oftechnology shocks Real business cycle advocates assume that in case they live longer than expected or have large medical bills.Second,they may want to leave bequests to their children,relatives,or charities,so again,they do not dissave all of their wealth during retirement. If the elderly who do not have children dissave at the same rate as the elderly who do have children,this seems to imply that the reason for low dissaving is the precautionary motive;the bequest motive is presumably stronger for people who have children than for those who don’t. An alternative interpretation is that perhaps having children does not increase desired saving.For example,having children raises the bequest motive,but it may also lower the precautionary motive:you can rely on your children in case of financial emergency.Perhaps the two effects on saving cancel each other. 9 Explain different between portfolio and transctions theories of money demand. 9.Portfolio theories of money demand emphasize the role of money as a store of value. These theories stress that people hold money in their portfolio because it offers a safe nominal return.Therefore,portfolio theories suggest that the demand for money depends on the risk and return of money as well as all the other assets that people hold in their portfolios.In addition,the demand for money depends on total wealth because wealth measures the overall size of the portfolio. In contrast,transactions theories of money demand stress the role of money as a medium of exchange.These theories stress that people hold money in order to make purchases.The demand for money depends on the cost of holding money(the interestrate)and the benefit(the ease of making transactions).Money demand,therefore, depends negatively on the interest rate and positively on income. 2.What are the four central disagreements in the debate over real business cycle theory? 2.There are four central disagreements in the debate over real business cycle theory. These disagreements have not yet been settled,and,as a result,they remain areas of active research.These areas are: i.The interpretation of the labor market.Over the business cycle,the unemploy￾ment rate varies widely.Advocates of real business cycle theory believe that fluc￾tuations in employment result from changes in the amount people want to work— by assumption,the economy is always on the labor supply curve.They believe that unemployment statistics are difficult to interpret for at least two reasons:first, people may claim to be unemployed to collect unemployment-insurance benefits; second,the unemployed might be willing to work if they were offered the wage they receive in most years. Critics think that fluctuations in employment do not just reflect the amount that people want to work.They believe that the high unemployment rate in recessions suggests that the labor market does not clear—that is,that the wage does not adjust to equilibrate labor supply and labor demand. ii.The importance of technology shocks.Real business cycle advocates assume that