# Why do you hold money cash?

## Why do you hold money cash?

One reason people hold their assets as money is so that they can purchase goods and services. People also hold money for speculative purposes. Bond prices fluctuate constantly. As a result, holders of bonds not only earn interest but experience gains or losses in the value of their assets.

## What happens to money demand when money supply increases?

Changes in the supply and demand for money Changes in the money supply lead to changes in the interest rate. when real GDP increases, there are more goods and services to be bought. More money will be needed to purchase them. On the other hand, a decrease in real GDP will cause the money demand curve to decrease.

## Why does an increase in money demand shift the LM curve to the left?

That is because at any given level of output Y, more money (less money) means a lower (higher) interest rate. An increase in autonomous money demand will shift the LM curve left, with higher interest rates at each Y; a decrease will shift it right, with lower interest rates at each Y.

## Is LM VS is MP?

Two important advantages of the IS-MP-model over the IS-LM- model are as follows: First both IS and MP are functions of the real rate of interest, so the model does not share the pitfall of the IS-LM-model, in which IS depends on the real rate of interest, while LM is a function of the nominal rate.

## Who determines money supply?

the Federal Reserve

## Does curve shift to the left?

The LM curve shifts right (left) when the money supply (real money balances) increases (decreases). Then imagine a fixed MS and a shift upward in money demand, leading to a higher interest rate, and vice versa. The IS curve shifts right (left) when C, I, G, or NX increase (decrease) or T decreases (increases).

## What is ideal supply of money?

It is that amount of money supply which keeps the aggregate demand of money or the total purchasing power in a state of balance with aggregate supply of money.It is called ideal supplye of nomey because it protects the economy from inflationary or deflationary pressurees.

## What shifts the MP curve?

An increase in inflation causes the central bank to choose a higher interest rate at a given level of output than before. Thus, the MP curve shows the relationship between output and the interest rate at a given time, but changes in inflation cause the curve to shift over time.

## What causes net exports to decrease?

A change in the price level is a change in the price of this domestic production. In particular, an increase in the price level increases imports and decreases exports, which results in a decrease in net exports. A decrease in the price level has the opposite effect on imports, exports, and net exports.

## What are the four components of planned expenditure?

The four components of planned expenditure are:

• Consumption expenditure.
• Government expenditure.
• Net exports.
• Planned investment spending.

## What are the two types of planned investment spending?

What are the two types of planned investment​ spending? Fixed investment and inventory investment.

## How and why do changes in the real interest rate affect net exports?

How and why do changes in the real interest rate affect net​ exports? When the real interest rate​ increases, the expected return on domestic assets rises relative to foreign assets. The resulting decrease in exports and increase in imports will cause net exports to decline when the real interest rate rises.

## What happens to a currency when interest rates are cut?

So, they exchange other currencies for dollars, and their increased demand for dollars raises the dollar exchange rate. Conversely, when the Fed cuts interest rates, investors sell dollar-denominated assets and buy foreign assets, which tends to weaken the dollar’s exchange rate.

## What are the two reasons why people demand money?

The Demand for Money

• Transactions motive. The transactions motive for demanding money arises from the fact that most transactions involve an exchange of money.
• Precautionary motive. People often demand money as a precaution against an uncertain future.
• Speculative motive. Money, like other stores of value, is an asset.

## Is curve a formula?

The name “IS curve” derives from the property that it represents that desired investment equals desired saving. i(r)=[y−t −c(y)] + (t −g). The left-hand side is desired investment.

## What is the relationship between interest rates and demand for money?

The demand for money is related to income, interest rates and whether people prefer to hold cash(money) or illiquid assets like money. This shows that the demand for money is inversely related to the interest rate. At high-interest rates, people prefer to hold bonds (which give a high-interest payment).

## What factors will cause shifts in the money demand curve?

A change in those “other determinants” will shift the demand for money. Among the most important variables that can shift the demand for money are the level of income and real GDP, the price level, expectations, transfer costs, and preferences.

## Why do increases in the real interest rate lead to decreases in net exports?

Why do increases in the real interest rate lead to decreases in net​ exports, and vice​ versa? A. Rises in the real interest rate lead to a higher value of the​ dollar, which in turn leads to a decline in net exports.

## What happens when real interest rate increases?

When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. As interest rates move up, the cost of borrowing becomes more expensive. This means that demand for lower-yield bonds will drop, causing their price to drop.