The Fed’s Primary Task - Key determinants of money demand

4 important questions on The Fed’s Primary Task - Key determinants of money demand

What affects the demand for money related to real income or output?

An increase in real income leads to greater spending and higher money demand.

How does the nominal interest rate influence money demand?

A higher nominal interest rate makes holding cash more costly, reducing money demand.

What is the effect of price level on money demand?

When price levels increase, individuals need to hold more money for the same goods.
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What influences the demand for money in the economy?

The key determinants include real income, nominal interest rate, and price level.

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