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
SHORT RUN OUTPUT AND PRICE In monopolistic competition, it's the product differentiation that permits its price without losing sales.  Due to brand loyalty consumers will c

define scarcity and oppurtunity cost.show how these concepts are useful in managerial decision making

construct a decision tree for the baked potatoes outlet using sales per day, number of days that quantity is sold together with selling prices per unit and average costs

Q. Avoiding Surplus and Inadequate Production? Demand forecasting is essential for the new and old organisations. It is somewhat necessary if an organisation is engaged in larg

The comparability principle Associations representing workers providing services - clerical, postal, teaching, etc. - have always attempted to  apply the "principle of comparab

manual problems solution of demand theory

production function

Describe the Application of economic theories Pertinent business decisions necessitate an unambiguous understanding of the environmental and technical conditions under which bu

Case studies and research papers on williamsons model of managerial discretion

Variable Reserve Requirement  (Cash and Liquidity Ratios) The Central Bank controls the creation of credit by commercial banks by dictating cash and liquidity ratios.  The ca