Timeline for "Demand for money" - definition
Current License: CC BY-SA 3.0
6 events
| when toggle format | what | by | license | comment | |
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| Apr 12, 2016 at 15:20 | comment | added | Mick | So is my "demand for money" equal the the amount of money I actually have - i.e. I have proven that this is the amount of money I wanted. If I (temporarily) had more than I really wanted then I would already have either spent it or invested it. If I (temporarily) had less than I really wanted then I would already have sold some investment vehicle for money. | |
| Apr 12, 2016 at 15:00 | comment | added | DornerA | @Mick you're missing one key point. If your current demand for money was one billion dollars, you would simply go to the bank and get a loan for one billion dollars. However, you would have to pay this money back with interest. Therefore, there is a natural constraint on the amount of money you demand which would be your income over the life of the loan. Imagine you take out a loan for the principle amount $P$ at the interest rate $r$, and you must pay it back in $T$ periods. The constraint on this loan is: $$(1+r)P\leq\sum_{t=1}^TY_t$$ where $Y_t$ is your income in time $t$. | |
| Apr 11, 2016 at 17:47 | comment | added | Mick | Sorry, but I still don't understand. I am looking for a definition which is clear enough so that it is obvious that my "demand for money" is not one billion dollars. | |
| Apr 11, 2016 at 17:43 | comment | added | Alexis L. | Yes. But if everyone has 1 billion it in its pocket ... You can easily see that there is a real inflation ! Besides the demand for money is usually meant in an average way: not only you but all households, regarding their needs (also in average). | |
| Apr 11, 2016 at 17:39 | comment | added | Mick | I desire to hold 1billion dollars... but that desire is not met. Is my demand for money "1billion"? | |
| Apr 11, 2016 at 17:37 | history | answered | Alexis L. | CC BY-SA 3.0 |