PAPM 1000 Chapter Notes - Chapter 24: Consumption Function, Marginal Utility, Marginal Cost
4 Dec 2017
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Chapter 24 the chicago school the new classicism. These determinants are independent of factors that influence the supply of money: total wealth in all forms, including human capital can best be measured by permanent income. As wealth, or permanent income, increases, the amount of money people desire to hold as cash balances also increases: cost of holding money is the second major determinant of money demand. Higher costs will result in less money being held. These costs vary with interest rate, the expected rate of inflation, and the price level. If the returns on non-money assets such as stocks and bonds rise, the opportunity cost of holding money rises, and less money is demanded. In general, however, the quantity of money demanded is insensitive to changes in the interest rate: higher expected rates of inflation enhance the prospects for capital gains and thus increase this cost of holding money.
