The demand for money shifts out when the nominal level of output increases.
When the quantity of money demanded increase, the price of money (interest rates) also increases, and causes the demand curve to increase and shift to the right.
A decrease in demand would shift the curve to the left.
What happens to the demand for money if there are increases in financial technology?
The demand for money is the relationship between the quantity of money demanded and the nominal interest rate, when all other influences on the amount of money that people wish to hold remain the same. The demand curve for money is downward sloping. An increase in the price level increases the demand for money.
What increases the demand for money?
An Increase in Money Demand. An increase in real GDP, the price level, or transfer costs, for example, will increase the quantity of money demanded at any interest rate r, increasing the demand for money from D1 to D2. The quantity of money demanded at interest rate r rises from M to M′.
What is the relationship between the demand for money and the interest rate?
If you hold money, your opportunity cost is that income you get from bond or in other words, the interest rate. So, when interest rate increases, you want to hold more bond and less money and vica versa. Thus, money demand and interest rate has an inverse relationship.
Why is there a demand for money?
Because it is necessary to have money available for transactions, money will be demanded. Hence, as income or GDP rises, the transactions demand for money also rises. Precautionary motive. People often demand money as a precaution against an uncertain future.