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
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

Northern Lumber operates a large lumber-processing mill in a small town in Washington State.  It is one of the larger lumber producers in the region and has some market power in th

Q. Explain about Smooth Convex Isoquant? Smooth Convex Isoquant: This kind of isoquant presumes continuous substitutability of capital and labour over a certain range, beyond

Burden of the national debt The extent of the burden on a nation of public debt, depends in the first place on whether it is an external or an internal debt.  The burden of th

Arguments against protectionism   Most of the arguments for protectionism may be met with counter arguments, but underlying the economic arguments as opposed to the social, mo

An optimum Population Countries are often described as under populated or overpopulated.  From the economist's viewpoint these terms do not refer to the population density (i.

CAPITAL MARKETS Markets in which financial resources (money, bonds, stocks) are traded i.e. the provision of longer term finance - anything from bank loans to investment in pe

Problem: (a) Explain with the help of a diagram, the effect on a consumer's equilibrium, of an increase in the price of commodity X while the consumer's money income and price

WHY MANAGERS NEED TO KNOW ECONOMICS The influence of economics towards the performance of managerial duties and responsibilities is of major importance. The importance and cont

Household This refers to all the people who live under one roof and who make or are subject to others making for them, joint financial decisions. The household decisions are a