Monetary Policy - the demand for money - the money demand curve
3 important questions on Monetary Policy - the demand for money - the money demand curve
How does the money demand curve slop? And why?
It slopes downward,
a higher interest rate leads to a higher opportunity cost of holding money, and reduces the quantity of money demanded
a higher interest rate leads to a higher opportunity cost of holding money, and reduces the quantity of money demanded
If the interest rate is very low, 1% then what will happen to the interest forgone by holding money?
The interest forgone of holding money will by small
Why do we draw the money demand curve with the interest rate?
because unlike stock they can be easily turned into money
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