Money Demand - Term Paper Example

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This includes the purchase of services and goods. The essay that you are reading is about the demand for money and how it varies with various factors at hand. The reference or example that is used is the statistics on…
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Money Demand
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Download file to see previous pages The price variable is the price for domestic cars. Federal Funds Rate is initialized as FFR. It refers to how much an individual citizen of America is giving away just by holding on to one dollar. It is also known as the return’s proxy.
Money is the defining factor in any economy therefore it is critical to regulate how much one has and how much one intends to spend. For the organs that deal with the amount of money that flow in a country’s economy, it is very crucial that the levels are checked regularly. This will help cub issues like money laundering and exaggerated loan rates. Money laundering is a very common thing in today’s world.
Liquidity is referred to as the extent in which assets or securities can be purchased or sold in the marketplace without affecting the product’s price. Liquidity as we know it is characterized by relatively high levels of activities in trading. Those assets that are easily bought and sold are considered to be liquid assets.
In whatever investment one engages in, there is a measurable amount of liquidity. It is not just because of the amount of the sellers or buyers present but mainly because of the product’s demand. They are not the same, but they are similar. Just to illustrate the point, there might be a very high demand for a product but the same product’s liquidity is low.
However, another confusing term that is easily confused with liquidity is marketability. Marketability according to scholars is an assets ability to be converted to cash. Unlike many economic terms that are associated with it, liquidity does not have a formula that can be used so that one can find its valu1e. Despite this, some people use a technique that gives off a relatively good answer. It is calculating using liquidity ratios.
It is considered safer, even within the learned circles to invest in liquid assets as compared to the illiquid assets. This is because from an investors point of ...Download file to see next pagesRead More
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