Friday, April 17, 2009

the demand for money and the quantity theory(3)

at the turn of the century Alfred Marshall of Cambridge University and Irving Fisher of Yale summarized the factors involved in the demand for money thus:
Demand for money : the higher our annual incomes, the more dollars of business we all will want to transact ; with various allowances for economies of scale , people hold demand at any time about in proportion to their income rate per year or month . (this transaction demand for money will be shifted downward a little at higher interest rates offered on goods bonds , savings deposits, and other close money substitutes. At higher interest you will economize on your cash balance , making each dollar turn over more rapidly.)
people also demand as a precautionary store of wealth , not wanting to put all their eggs in the basket of risky assets and wanting to be prepared for bargains or sudden expenses . this precautionary (or " asset") demand for money will be much affected by factors other than income : total wealth ;level of sacrificed interest and profit yields ; optimism ,pessimism,uncertainty about the future ; expected changes in price of goods and assets (rate of inflation ), and interest rates - all the "speculative" elements that any investments depend on .

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