Please don't suck up to my arse....please!! lol
Ok.....the demand for $$, according to Keynes, consists of
transaction, precautionary and speculative demand.
Transaction demand = Demand for $$ to tide you by day-to-day, as
a lay-man definition. That means how much you desire to hold $$ for
your daily uses.
Precautionary demand, I no need to say so much, is the demand
for $$ for rainy days. This amount varies, you can expect the ill,
the elderly and pessimistic people to hold more. The last is
particularly important. If people believe Chee Soon Juan is gonna
become our PM, they'll start stashing $$.
Speculative demand is more complex. It is the demand for $$ to
make moves in the bond market. In other words, this demand is of
particular importance here. Why the demand curve slopes is because
the demand for $$ for speculating is inversely proportional to
interest rates.
Why?
As interest rates go up, you must be a goondu to hold your $$ in
your pillow while everyone earns $$ buying bonds and receiving the
subsequent regular pay-outs tagged to that interest rate.
2ndly, the expectation of interest rates. When it is high,
people will expect it to fall, so people will start cutting their
speculative demand bcos they think they won't earn much in the
future. The converse holds true.
So....after such a long story, you should be able to see what
would affect the demand for $$.
Example, your income goes up, naturally your transaction demand
will go up as you start buying Maseratis.
Thus said, how do you start by increasing incomes? That's a even
longer story.
Hence, supply side policies are preferred as supply of $$ is
easier to manipulate. To explain how to manipulate the circulation
of flow will cut into my sleep-time though...
