Explain demand for money, International Economics

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Q. Explain why one can write the demand for money as follows: Md = P L (R, Y)

Answer: The collective money demand is proportional to the price level. Imagine that every prices in an economy doubled except the interest rate and everyone's real incomes remained unchanged. After that the money value of each individual's average daily transactions would then simply double the same as would the amount of money each wishes to hold.


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