Explain how the following changes would affect the amount of money an individual demanded based on...
- Explain how the following changes would affect the amount of money an individual demanded based on the Inventory-Theoretic approach on the transaction demand for money:
- An increase in the interest rate paid on bonds.
- An increase in the brokerage fee for bond market transactions.
- An increase in income.
- An increase in the length of the payment period, for example from a week to a month.
Homework Answers
I- It will lead to a decrease in the demand for money because people will invest more in bonds rather than keeping cash.
2- It will lead to an increase in the demand for money . People will avoid investing in bonds and prefer cash.
3- It will lead to an increase in the demand for money because income has a positive relationship with the demand for money
4- It will lead to an increase in the demand for money because people will hold money for transactions of 1 month rather than 1 week .
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