Sample Term Paper

Words 1,560

1.     Discuss some of the major determinants of the demand for money by sector and in total. Discuss some differences in the demand for money which might exist for countries other than the US

Effective formulation of Monetary Policy depends on demand for money. Money Demand acts as a way of controlling monetary policy. Therefore the stability of the money demand function is important for the monetary policy to impact inflation and real output. Fisher believed money is held simply to facilitate the transaction and does not have intrinsic value. (Katafono, 2001)

The Cambridge group thought that the demand for money was an important factor in determining the equilibrium price level consistent with a given quantity of money. Keynes showed that the demand for money in terms of the transaction, precautionary and speculative motives and interest rate. He showed that the aggregate demand for money becomes perfectly elastic with respect to the interest rate. Transaction theory, approach Showed that the inventory-theoretic approach resulted from the medium-of-exchange function of money. The portfolio approach, where the key stress is placed on risk and the expected returns of assets. According to The consumer demand theory framework demands for money as a direct extension of the traditional theory of demand for any durable goods.

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