The I Theory of Money Markus K. Brunnermeiery and Yuliy Sannikovz rst version: Oct. 10, 2010 this version: June 5, 2011 Abstract This paper provides a theory of money, whose value depends on the functioning of the intermediary sector, and a uni ed framework for analyzing the interaction between price and nancial stability. What are the determinants of liquidity preference? The Liquidity Preference Theory says that the demand for money is not to borrow money but the desire to remain liquid. Since as compared to non- human wealth, human wealth is much less liquid, Friedman has argued that as the proportion of human wealth in the total wealth increases, there will be a greater demand for money to make up for the illiquidity of human wealth. The higher the rate of interest, the greater the opportunity cost of holding money (i.e. He can manage his money balances so as to earn some interest income as well. 6,000 for 15 days in each month. It will therefore be called the excess demand theory of money. He shows how a theory of the stable demand for money becomes a theory of prices and output. 15.2. It shows how the money demand function fits intostatic and dynamic macroeconomic analyses and discusses the problem ofthe definition (aggregation) of money. Bonds, treasury bills or treasury certificates are not included in the theory of the demand for money. Thus the speculative demand for money constitutes the main … Noté /5: Achetez The Demand for Money: Theory, Evidence and Problems de Laidler, David E.W. Disclaimer Copyright, Share Your Knowledge
In fact, the demand for money is the quantity of money that people want to hold. It is assumed that individual is paid Rs. As a country becomes richer, its demand for money for transaction and other purposes will increase. The higher the interest rate, the greater the opportunity cost of holding money rather than non-money assets. As the interest rate falls, the quantity of money demanded falls. Precautionary motive for holding money refers to the desire of the people to hold cash balances for unforeseen contingencies. Even in case of saving deposits, the asset which we are taking for illustration, one has to spend on transportation costs for making extra trips to the bank for withdrawing money from the Savings Account. The second component of the demand for money, that is, L2(r) represents the speculative demand for money, which depends upon rate of interest, is a decreasing function of the rate of interest. – from £6.99. 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