What is Demand for Money?

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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