The demand for money comes from the desire to hold liquid assets of which money is the only perfect example. It may be noted that money is not demanded for its own sake but because it can be used to purchase economic goods and services. Keynes argued that there are three motives for holding money. First, individuals will demand money [...]
In this article we will discuss about the demand function for money. The responsiveness of the demand for money to the changes in the levels of income and the rates of interest will be very important in understanding the factors affecting the demand for money in any economy. Demand for money is concerned with the amount that would be kept [...]
The Transaction Demand for Money: A third approach to the demand for money is the inventory approach to transactions demand developed by both Baumol and Tobin. They show that there is a transactions need for money to smooth out the difference between income and expenditure streams, and that the higher the interest rate — the return on holding bonds instead [...]