The increase of income leads to the right shift of the money demand curve and the increase of money demand. At the same time, because the money supply and price level remain unchanged, the money supply curve does not move, and because the money demand curve moves to the right, the interest rate will also rise. Given the money supply, the increase of income level increases the money demand, so it is necessary to restore the balance of the money market through the increase of interest rate and the decrease of speculative demand, so the money demand curve is positive slope. The actual money demand L is determined by KY-HR. With the increase of income Y, the actual money demand L will certainly increase. The actual money supply m is the ratio of the money supply to the price level, and the two remain unchanged, that is, the actual money supply remains unchanged. When income Y increases, money demand increases, and only when interest rates rise can money demand decrease, making it equal to the constant actual money supply.

1. Factors affecting the demand for money: There are three most important factors influencing people to hold their own assets in the form of money, namely income, price and interest rate. The most important factor for the monetary demand of trading motivation and preventive motivation is income. There is a changing relationship between income and money demand, that is, the higher the income level, the higher the money demand level. If the amount of money people hold is the K share of income, then this part of money demand can be expressed as L T = lt (y) = KY, and K > 0. Parameter k indicates the sensitivity of money demand to income changes. The greater the k, the greater the impact of income changes on money demand.

2. Market interest rate refers to the interest rate determined by the relationship between supply and demand in the capital market. When funds are tight, supply is less than demand and interest rates rise; Funds are loose, supply and demand dry up, and interest rates fall. On the other hand, interest rates can affect the supply and demand of funds and promote the balance between them. When the supply of funds exceeds the demand, the market has surplus funds and the interest rate drops, the interest of fund suppliers will be reduced, which can encourage some money originally intended to be invested in the capital market to be used in other aspects. At the same time, due to the lower interest rate, raising funds from the market for new enterprises or expanding the production or operation scale of existing enterprises, the interest burden is reduced, and it is in a relatively favorable position, with more fundraisers and increased capital demand. This may gradually balance the supply and demand of funds in the market. On the other hand, if the demand for funds in the market exceeds the supply and the interest rate rises, it will cause a series of opposite economic activities. That is, people squeeze out some funds from all sides to invest in the market in order to obtain more interest income; At the same time, due to the increase in the cost of raising funds, the profits that may be obtained from the use of such funds will be reduced, so as to raise funds from the market as little as possible to alleviate the shortage of funds.