Chapter 7 Media Article

"What is the Demand for Money?", www.economics.about.com, Jan 21st, 2006

This article basically explains the consumers response to intererst rate changes and how that factors into the economy's demand for money. The article states that, "Since money is only one of many forms of wealth, it has plenty of substitutes." The interaction between money and its substitutes explains why the demand for money changes. The article states that the the following are factors that greatly influence the demand for money. Interest Rates, consumer spending, precautionary motives, Transaction costs for stock and bonds, and international factors.

Other factors include

1. A reduction in the interest rate.
2. A rise in the demand for consumer spending.
3. A rise in uncertainty about the future and future opportunities.
4. A rise in transaction costs to buy and sell stocks and bonds.
5. A rise in inflation causes a rise in the nominal money demand but real money demand stays constant.
6. A rise in the demand for a country's goods abroad.
7. A rise in the demand for domestic investment by foreigners.
8. A rise in the belief of the future value of the currency.
9. A rise in the demand for a currency by central banks (both domestic and foreign).

The article's conclusion is that, "The demand for money is not at all constant. There are quite a few factors which influence the demand for money."

Relevance to Ch. 7 - Money is a Commodity

This articles relationship to chapter 7 is that it reinforces that fact that money is a commodity. Which means that it has a demand, a suppy, and a cost (interest) as well. Just like elastic goods, if substitutes are available, the demand for it, and it's value, will go down. This also works vice-versa.