Demand for money

The demand for money tells us what makes people desire a certain
amount of money. Since money is required to conduct transactions, the
value of transactions will determine the money people will want to keep:
the larger is the quantum of transactions to be made, the larger is the
quantity of money demanded. Since the quantum of transactions to be made
depends on income, it should be clear that a rise in income will lead to rise in
demand for money. Also, when people keep their savings in the form of money
rather than putting it in a bank which gives them interest, how much money
people keep also depends on rate of interest. Specifically, when interest rates go up, people become less interested in holding money since holding money amounts to holding less of interest-earning deposits, and thus less interest received.
Therefore, at higher interest rates, money demanded comes down.

Demand for Money:

The demand for money explains to us what urges people to wish a definite amount of money. Money is needed to manage transactions, and the value of transactions will certainly decide the money people would want to keep:

• The larger is the quantum of transactions to be made; the bigger is the quantity of money demanded. Since the quantum of transactions to be made relies upon earning, it should be lucid that a rise in income will lead to a rise in demand for money
• When people stockpile their savings in the form of money rather than keeping it in a bank which fetches them interest, how much money people stockpile also relies upon the rate of interest
• Particularly, when interest rates rise, people become less focused on stockpiling money since holding money leads to holding less of interest-earning deposits; thus, less interest received. Hence, at more interest rates, money demanded decreases.