Theory Of Money Demand
January 1, 2017 2 Comments
The demand for money is the amount of assets or wealth that people want to hold in the form of cash. This, in turn, is a function of the volume and frequency of their transactions as well as of interest rates (i.e. the opportunity cost of holding cash). There is also a third component, which is the precautionary demand for money. In cash constrained economies, the precautionary demand for money is higher.