Demand function for money, Managerial Economics

Demand Function for Money

In the Keynesian analysis , the demand for money is a function of the level of income and the rate of interest. According to Milton Friedman, the demand for money is a function of the following six factors:

1. The rate of return on bonds higher is the rate of return on bonds smaller is the demand for money.

2.The rate of interest on equities (stock) higher is the rate of return on stock, lower is the demand for money.

3.The rate of change of prices. If the price are rising at rapid rate, people would economise on their holdings of money in order to avoid a fall in the real purchasing power of their money holding. consequently, the demand for money holding is negatively related to the rate of change of prices.

4. The ratio of non human to human wealth. Human capital is embodied in the individual in the form of investment made in education, skills .etc. which enables an individual to produce future returns. Non human capital represents ownership of income yielding physical assets ownership of land house, machine etc. A change in the proportions of the total wealth held in these two forms will changes the demand for money.

5.Real income Y/P also affects the demand for real cash balances M/P.

6.Tastes and preferences of the wealth holders, economic and non economic conditions also affect the demand for money by influencing the desire of the people to hold money. According to Milton Friedman, uncertainty and geographic mobility act as the possible causes for an increase in public liquidity preference or demand for money.

Posted Date: 12/1/2012 5:09:08 AM | Location : United States







Related Discussions:- Demand function for money, Assignment Help, Ask Question on Demand function for money, Get Answer, Expert's Help, Demand function for money Discussions

Write discussion on Demand function for money
Your posts are moderated
Related Questions
Perfect Competition   The model of perfect competition describes a market situation in which there are: i.         Many buyers and sellers to the extent that the supply of

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

Factors influencing demand for a product These are broadly divided into factors determining household demand and factors affecting market demand . Factors affecting hou

Time domain: Time domain is a term which is used to define the analysis of mathematical functions or physical signals, with respect to time. In the time domain, signal or function

TYPES OF BUDGETS 1.     Deficit budget   If the proposed expenditure is greater than the planned revenue from taxation and miscellaneous receipts, this is a budget defic

Measuring Point Elasticity on a Linear Demand Curve To explain the measurement of point elasticity of a linear demand curve, let's suppose that a linear demand curve is given b

Market research operations to obtain reliable and relevant information about the trends in market. A data analysing and processing system to estimate as well as evaluate the s

Factors influencing Supply Curve State of technology     There is a direct relationship between supply and technology.  Improved technology results in more supply as with

gap between economic theory and business practice

Q. What is Transport and Storage Economies? As the output increases, unit cost of transportation of raw materials, intermediate products and finished products fall. This is for