No open-access location is known for this record yet.
No open-access location is known for this record yet.
Since the individual starts with $ Y and spends it in a continuous even stream over the period, his average holdings, over the period, offunds in bonds B and cash M are only Y12. Hence, M + B = ~Y. Further, since the individual withdraws Weach time and spends it in a continuous steady stream, and draws out a similar amount the moment it is spent, his average transactions balances M are ~W. These propositions are shown in Figures 4.1 and 4.2. In Figure 4.1 for expenditures over one period, OYI represents the amount of income that has not been spent at the various points of time within the period and I YA is the amount that has been spent. 0 YI equals ~Y over the period and would be held in either money or bonds. Figure 4.2 focuses on money holdings. Assuming that the period (4 weeks) is divided into 4 weeks, the amount $ W is withdrawn at the beginning of each week and spent evenly through the week. The average cash balances over the period are only ~w Therefore, from Figures 4.1 and 4.2, the average bond holdings over the period are (~Y - ~W).I Figure 4.1 o Time so that, and where we have inserted the superscript tr to emphasize that (4) specifies only the transactions demand for money and does not include the money demand that would arise for the speculative and other motives. Equation (4) is called the square rootfonnula in inventory analysis and has the easily identifiable form of a Cobb-Douglas function. In the present analysis, it specifies the demand for transactions balances for a cost minimizing individual. The preceding demand function is clearly different from the classical and Keynesian demand functions for transactions balances and, among other things, indicates that the demandJor transactions balances depends upon the rate oJinterest. The properties of this demand function, showing its response to changes in the real levels of expenditures, interest rates and prices, are discussed below.
Loading…
Imported from OpenAlex (CC0) — nothing here is generated.