ECO 3341 Lecture Notes - Ceteris Paribus, Aggregate Demand, Money Supply
Document Summary
People who hold onto cash are incurring an opportunity cost in forgone interest or profits. The reason why people hold onto money may be because of speculative demand. To take advantage of the expected future changes of stock and bond prices as well as other nonmoney financial assets. When interest rate falls, the opportunity cost of holding money will fall, and people will increase their speculative demand. The demand for money curve = a money curve represents the quantity of money that individuals hold at the brain interest rates, ceteris paribus. Inverse relationship between the quantity of money demanded and the interest rate. The reason why there is a downward slope is because of the speculative demand for money at different possible interest rates. The reason why this happens is because the sellers have to offer higher returns to attract potential bond buyers. Than in this scenario there is a better bargaining position for bond sellers.
