Principles of Macroeconomics / Unit 12 MAC 1109 short lesson, about 20 seconds
The Interest Rate Is the Price of Holding Money
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The idea
All three motives respond the same way to interest rates. When rates rise, holding money costs more, so people hold less. When rates fall, they hold more.
In practice
A household can keep a month's spending in cash, or part in a bond fund and transfer as needed.
Where people slip
The second earns interest and costs attention, which is the real trade.
Your place on the trail
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