Econ Dev 8

Econ Dev 8 - ECON 314 Oct.6 What influences demand of money...

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ECON 314 Oct.6 What influences demand of money for individuals and institutions? Interest rates/expected rates of return on monetary assets relative to the expected rates of returns on non-monetary assets. Risk : the risk of holding monetary assets principally comes from unexpected inflation, which reduces the purchasing power of money (how much you could lose by holding your money) But many other assets have this risk too, so this risk is not very important in defining the demand of monetary assets versus non-monetary assets. Liquidity : A need for greater liquidity occurs when the price of transactions increases or the quantity of goods bought in transactions increases. What influences aggregate demand of money? Interest rates/expected rates of return : monetary assets pay little or no interest, so the interest rate on non-monetary assets like bonds, loans, and deposits is the opportunity cost of holding monetary assets. A higher interest rate means a higher opportunity cost of holding monetary assets
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Econ Dev 8 - ECON 314 Oct.6 What influences demand of money...

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