Chapter 14, Problem 1RQ

To determine

Explain the demand for money and relationship between nominal interest rate and income and price level.

Explanation of Solution

The demand for money refers to the amount of money that people choose to hold or  the amount of money held by all wealth holder taken together. If the nominal interest rate increases, then the opportunity cost of holding money will increase. If the demand for money decreases, then the nominal interest rate increases.

In general, if the price level or income increases, then the volume of transaction increases and the benefit of holding money will increase.

Economics Concept Introduction

Money: Money refers to the medium of exchange in the form of paper, currency, and coins, which are used to make payment for all the commodities and services.