EC223 Chapter 5: EC223 Chapter 5 Notes.docx
Document Summary
Determinants of asset demand: wealth, the total resources owned by the individual, including all assets, holding everything else constant an increase in wealth raises the quantity demanded of an asset, expected return, (the return expected over the next period) on one asset relative to alternative assets, an increase in an asset"s expected return relative to that of an alternative asset, holding everything else unchanged, raises the quantity demanded of the asset, risk, (the degree of uncertainty associated with the return) on one asset relative to alternative assets, if an asset"s risk rises relative to that of alternative assets, its quantity demanded will fall, liquidity, (the ease and speed with which an asset can be turned into cash) relative to alternative assets, the more liquid an asset is relative to alternative assets, holding everything else unchanged, the more desirable it is and the greater will be the quantity demanded.
