Answer to Question #87572 in Macroeconomics for nhlanhla Faith Nkomo

Question

What relationship does the demand for money have with income and interest rate

Answer 1

The demand for money is determined by two factors: the amount of income and the level of interest rates on loans and bonds. However, these two factors have a diverse influence on the magnitude of demand. Income is directly proportional, i.e. increasing income increases the demand for money. The interest rate is inversely proportional, i.e. interest rate increase leads to a decrease in the demand for money