Demand for money

As demand for money ( liquidity and demand, cash management ) refers to the needs of economic entities of money. According to the functions of money money is used as a payment and a store of value and a unit of account and a standard of comparison and also demand for these purposes from economic agents.

Theories of money demand

There are several concepts that have the goal of explaining the money demand of economic agents. Basically, you can differ between ( neo) classical and Keynesian approaches.

Components of money demand

Transaction Checkout

See the classic money especially a medium of exchange, which allows the exchange of trade between specialized economic agents. It also speaks of the transaction balances ().

The demand for money as a means of payment is according to the quantity equation, the higher the higher the income and the price level and the lower the velocity of circulation.

Speculation Checkout

In addition to the (neo - ) classical approach John Maynard Keynes added in his Keynesian model, the total holding money for transaction purposes for holding money to a store of value purposes. This he described as speculation Checkout ( interest ).

Individuals share on their assets in cash and other net assets components (such as physical capital or other). Your goal is to maximize the expected assets ( diversification aspects for minimizing risk were not originally considered explicitly ). Expect economic agents, for example, falling securities prices ( as will be understood in this context securities usually bonds, falling prices correspond with rising yields ) then provides money holdings, the way to avoid expected losses (speculative fund). However, due to the holding of monetary opportunity cost in terms of lost interest income. The demand for money from the speculative motive is therefore negatively correlated with the prevailing level of interest rates.

Caution Checkout

In addition to the speculation Checkout Keynes also introduced the caution Checkout ( Lv). It contains money from economic agents (more precisely, the non-banks ) is maintained in order to perform unforeseen transactions. It is necessary because the economic agents are uncertain about their future situation and they can not predict exactly.

The higher the income, the greater is the real extent of caution checkout. The reason is that with increasing income even more ( predictable ) transactions are executed (see transaction balances ), which in turn bring about uncertainties necessary replacement purchases or repairs with it. The caution Checkout is often not taken into account in models independently, but subsumed under the transaction to simplify checkout.

Planning certainty which arises from confidence, the desire diminishes high deposits in the checkout caution deposit. Why some investors with foresight to invest in Aktvitäten that generate trust and predictability.