The Demand For Money517

Preview 517

Quantity Theory of Money 517

Velocity of Money and Equation of Exchange 518

Quantity Theory 519

Quantity Theory of Money Demand 519

Is Velocity a Constant? 520

Keynes's Liquidity Preference Theory 521

Transactions Motive 521

Precautionary Motive 522

Speculative Motive 522

Putting the Three Motives Together 523

Further Developments in the Keynesian Approach 524

Transactions Demand 524

Precautionary Demand 527

Speculative Demand 527

Friedman's Modern Quantity Theory of Money 528

Distinguishing Between the Friedman and Keynesian Theories 530

Empirical Evidence on the Demand for Money 532

Interest Rates and Money Demand 533

Stability of Money Demand 533

Summary, Key Terms, Questions and Problems, and Web Exercises 533

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