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?
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