The determinants of demand for money

A question from Yahoo! Answers:

What types of thimgs determine how much money people demand?

First of all, it’s not just people; it’s businesses, too. This said, demand for money is driven primarily by expectations. In good times, people expect to be able to hold onto their jobs, so they confidently take out mortgages and car loans; businesses see the need to expand, so they borrow to buy equipment and supplies. In bad times, the flow reverses; consumers often decide against large purchases (and loans to finance them), businesses put expansion plans on hold.

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