The Demand For Money. Essay

The Demand For Money. Essay

Length: 965 words (2.8 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

The demand for money
It’s common sense that without money to use for goods and services, life for us can be really difficult. Therefore to use money, one must have money and the policies that govern the demand and use can vary. Factors that play into the public’s demand for money consist of; transactions demands, precautionary demand, and asset demand. Transaction demand involves the main reason people hold money, which is to purchase goods and services. Based on intervals of income received people will make purchases which can increase or decrease on a continuous basis. With the practice of holding money people will strategically make purchases to their convenience rather than using other monetary resources that will draw interest. Additionally, something that alters the quantity of money in rotation will have some affect on several industries and thus on basics of GDP.
So it makes sense that, as nominal GDP rises people will want to hold on to money to ensure they are able to make more purchases. People like me also find it prudent to hold on to emergency funds as a precautionary demand. The positive side to using this method is that people will have readily cash on hand. The negative aspect will cause a person to lose out on any interest earned; however in most cases the intent to put away emergency cash is measured against, the amount of interest rate they can make through putting their money away in a saving account. The more attractive interest rate offered the better justification in why an individual will not hold on to a greater amount of cash. When discussing savings we cannot overlook the need to hold money as a store of value, otherwise known as asset demand.
As I mentioned earlier households and busines...

... middle of paper ...

... key uses. It denotes an established standard used by the quantity theory of money, which communicates increases in the money supply to increases in the total level of prices. Additionally, solving the equation for 'M ' can serve as an indicator of the demand for money. This economic equation highlights the connection between money supply, velocity of money, the price level, and real GDP. The equation was developed by Irving Fisher, a well-known economist of the early 1900’s. The equation of exchange encompasses: M = money supply, V = velocity of money, P = average price level of goods, Y = real GDP per year. This formula is not a measured model that can estimate in measurable terms; however, it does provide a theoretical basis to help me realize the interaction of these four variables and gives one a feel for the trend, strength, or weakness of the economy.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Transaction Demand for Money Theory Essay

- Inventory Approach to the Demand for Transaction Balances: An extension of the basic transaction demand for money theory is that set out by Baumol (1952) and further extended by Tobin (1956). The major underpinning of the inventory approach is that individual’s face a trade-off, between the liquidity offered by money balances, and the interest offered by bond holdings. The models determinants are therefore the nominal interest rate, the level of real income that relates to the desired number of transactions and the transaction costs of transferring money to bonds and vice versa, which are assumed fixed....   [tags: bonds, income, assets]

Better Essays
1738 words (5 pages)

Money Is The Building Blocks Of The Economy Essay

- If the money is the building blocks of the economy; then the interest rate is the price of those building blocks. The interest rate is the cost, the firms, and the individuals, will have to pay for the use of the money, the price is expressed as a percentage of the amount borrowed. Subsequently, how much truth is in the statement that, “One’s income determines the amount one saves, but the interest rate determines how it is saved”. There are several factors that determine from economical point of view, what might incline people and firms, to save money instead of spending them; some of them are: • Demand for money • Disposable Personal Income • Propensity to Consume • Consumer Confidence I...   [tags: Money, Economics, Demand, Inflation]

Better Essays
801 words (2.3 pages)

Economics : A Study Of Human 's Ordinary Business Essay

- When people open television, they may often hear a word ‘economics’, the emcee may say:’ some countries’ pecuniary condition is not good’, pecuniary condition means the economic condition of a country. As a business student, I know economics is very important course, but what is economics and why us should study it. This essay will definite economics in board way, describe the importance of economics, simply introduce some economics theories, how can I apply those theories into my daily life and future career and what determine me to make a decision based on economics theories....   [tags: Economics, Supply and demand, Money]

Better Essays
1147 words (3.3 pages)

Essay on Why Students Need a High School Economics Course

- Several students claim, they are not fond of school. They want to take as few classes as they can to finish as fast as they can. The most common question a teacher will hear is “How will we use this in real life?” In most instances, students will not use a majority of the information they learned in school, in the ‘real world’, but they will have the information if the need arises nonetheless. Not everyone will use the quadratic equation every day, nor will they need to know the electronic configuration chart from memory....   [tags: money, business, supply, demand]

Better Essays
885 words (2.5 pages)

Say 's Law Is Named After, 18th Century French Classical Liberal Jean Essay

- Say’s law is named after , 18th century French classical liberal Jean – Baptiste Say . Say’s law states :- ‘’ Production is the source of Demand ‘’ When an individual manufacture goods and services , he get paid for that goods and services which he produced and from that pay , he can demand other goods and services . From the above statement it can be derived : ‘’ Supply creates its own demand ‘’ It means that supply of goods lead to sufficient income to create demand for goods equal to its supply ....   [tags: Inflation, Money, Economics, Supply and demand]

Better Essays
1235 words (3.5 pages)

Minimum Hour Contract Must Be Banned Essay

- Considering the advantages and disadvantages of zero hour contract to both the employer and employees, zero hour contract must be banned. A Zero-hour contracts are flexible agreement between the employer and employees. In it, it does not include the number of hours that the employee will be doing. It is a way to making fast and easy money. The way it works is by the employer telling the employee when to come to work. Part of the zero-hour contract includes holiday pay, however, it does not include sick days....   [tags: Employment, Contract, Money, Supply and demand]

Better Essays
778 words (2.2 pages)

Analysis Of `` Money `` By Pink Floyd From Their 1973 Album The Dark Side Of The Moon

- The song I chose to do my project on is “Money” by Pink Floyd from their 1973 album The Dark Side of the Moon. I chose this song because I grew up listening to Pink Floyd on the old record player with my father and this song was one of his many favorites. He used to tell me about this song and how it was relevant in the 70’s and to this day the old cash register noise always brings back memories. The song itself was Pink Floyd’s first hit in the US. The song represents the American dream of getting more money and the thought of money solving all the problems....   [tags: Economics, Supply and demand, Goods]

Better Essays
811 words (2.3 pages)

Demand Estimation : A Product Or Service Essay

- Demand Estimation is a process that involves coming up with an estimate of the amount for a product or service. This demand is typically confined to a particular time period such as a month, quarter or year. According to Luke Arthur, “Demand Estimation not away to predict the future of any business, it can be used to come up with some fairly accurate estimates if the assumption are made correctly. One of the reason companies use demand estimation is pricing, when you offer a new product or start a new business you may not have an idea on how to price your product....   [tags: Supply and demand, Consumer theory]

Better Essays
860 words (2.5 pages)

Essay on The Price Of Supply And Demand

- Sloman, Wride and Garratt (2012) suggest ‘individuals are free to make their own decisions’. That means either consumers or sellers are free to make their own demand or supply decisions, which are transferred between them through the price mechanism. With the interaction of the market forces of supply and demand, the price mechanism determines equilibrium price at which goods will be bought and sold in the market. Market equilibrium is the position where at a given price, the quantity demanded equals the quantity supplied....   [tags: Supply and demand, Economic equilibrium]

Better Essays
1094 words (3.1 pages)

Economics : Supply And Demand Essay

- Supply and demand Economics is a subdivision of social science that deals with the factors that determine the production, dispensation, and utilization of goods and services. According to what I have learned during high school, Economics is a study about different issues regarding on people 's wants and needs. It also deals about taxation, supply and demand, management and anything related in business. It is also a study about how we live and how we produce and consume different things in our everyday lives....   [tags: Supply and demand, Economics]

Better Essays
755 words (2.2 pages)