Demand for Money
Categories: Econ, Company Management, Financial Theory
There’s one thing that connects us all. No, not just modern plumbing—the need for money. But “demand for money” isn’t just about wanting money. Demand for money is specifically the demand for cash-money, either in actual cash or in bank deposits.
What other form would your money possibly take? Um...how about investments? (Time to open your 401k or Roth IRA if you don’t have one yet). Investments are a good idea since, unlike cash and most bank deposits, they can keep up or beat inflation (if your investments yield returns).
And that’s just it: sometimes, people would prefer to hang onto cash—even if it’s losing buying power to inflation—because it’s safer than investing. People also want money, a.k.a. higher liquidity, when they’re about to buy something.
Demand for money comes into play when studying macroeconomic theory. If people are spending and investing, that’s generally good for the economy. If they’re not...well...that just makes things awkward, and the economy goes south.