Demand for Money:
The demand for money explains to us what urges people to wish a definite amount of money. Money is needed to manage transactions, and the value of transactions will certainly decide the money people would want to keep:
- The larger is the quantum of transactions to be made; the bigger is the quantity of money demanded. Since the quantum of transactions to be made relies upon earning, it should be lucid that a rise in income will lead to a rise in demand for money
- When people stockpile their savings in the form of money rather than keeping it in a bank which fetches them interest, how much money people stockpile also relies upon the rate of interest
- Particularly, when interest rates rise, people become less focused on stockpiling money since holding money leads to holding less of interest-earning deposits; thus, less interest received. Hence, at more interest rates, money demanded decreases.
Also Read: What is demand?
The above mentioned is the concept that is explained in detail about Demand for Money. To know more, stay tuned to BYJU’S.