Answer to Question #120994 in Macroeconomics for kudzanai joel tachiwenyika

Question

explain how changes in one varibles can lead to a shift in the money demand curve in the classical model

Answer 1

The classical analysis of the demand for money is based on the quantitative theory of money, the essence of which is expressed By I. Fischer in the following equation:

M*V=P*Y

According to the equation, the demand for nominal cash balances will be directly proportional to the nominal volume of national output and inversely proportional to the speed of money circulation.The higher the price and nominal volume of national output, the greater the demand for money.