Purchase Solution

Factors impacting aggregate money demand

Not what you're looking for?

Ask Custom Question

Describe the three main factors that determine aggregate money demand. Illustrate, with examples, how changes in these factors alter aggregate money demand.

Purchase this Solution
Solution Summary

The solution explains the concept of aggregate demand very well and the main factors that determine AD - Price Level, Real income and interest rate. The solution is very detailed and illustrative with lot of examples. The response explains the concepts very well and in detail. It is ideal for students looking to get a detailed understanding of the topic.

Solution Preview

Solution:

The demand for money is the quantity of monetary assets, such as cash and checking accounts, that people choose to hold in their portfolios. Choosing how much money to demand is thus a part of the broader portfolio allocation decision. Here, although we primarily consider the Aggregate, or total, Demand for money, the same economic arguments apply to individual money demands. Thus, it can be said, the Aggregate Demand for Money is the sum of all individual money demands.

The macroeconomic factors that have the greatest effects on aggregate money demand are - i ) the price level, ii) the real income, and iii) the interest rates.

(i) The Price Level: Higher prices increase people's need for liquidity and thus raise the aggregate money demand. The ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Demand for money

    What is meant by the demand for money? The demand for money is affected by several factors, including the level of income, interest rates, and inflation as well as the uncertainty about the future.

  • Economics-Macro

    Demand-pull factors originate in the private sector. Example: increases in money supply c. Cost push factors originate in the private sector. Example:An increase cost of production. Demand-pull factors originate in the private sector.

  • Supply shocks and price stabilization

    Thus, a smaller money supply decreases consumption, which it the primary driver of aggregate demand (Schmitt, 2003). Thus, we see that prices fall as the money supply falls, because the demand curve shifts inward.

  • Changes in aggregate demand

    Such negative factors will add on to the aging population effect and make money demand even lower. The solution does a great job of explaining the concept of aggregate demand and the impact of aging population on the aggregate demand.

  • Aggregate Demand Curve and Federal Reserve Policy

    The change in the nominal money supply causes a shift of the aggregate demand curve, whereas a change in the price level causes a movement along the aggregate demand curve. Explain. 2.

  • Macroeconomic Prescription for the Near Future

    Aggregate Demand, Aggregate Supply, and Inflation Aggregate Demand: the total demand for all goods and services in the economy.

  • Regulations and the Changing Financial Market Landscape

    In particular, you want to focus on regulation in the context of impacting the money supply.

  • Difference between cost-push and demand-pull inflation

    Such an inflation may arise from any individual factor that increases aggregate demand, but the main ones that generate ongoing increases in aggregate demand are 1. Increases in the money supply 2. Increases in government purchases 3.

  • Aggregate demand / aggregate supply

    The most important factors that increase aggregate demand and shift the aggregate demand curve to the right are: 1. An increase in consumption (household) spending ( C). 2. An increase in investment (business) spending (I). 3.

View More Related Solutions