Elasticity of money demand mainly refers to interest rate elasticity of money demand and income elasticity of money demand

Interest rate and income are the main factors that determine money demand, which are influenced by these two aspects.

Money demand theory holds that people have three main motives for holding money

1. Trading motivation

2. Prevention motivation

3. Speculation motivation

Among them, both trading motivation and prevention motivation are increasing function of income. The higher the income, the more people are willing to spend and save.

The trading demand is also influenced by the interest rate. With the change of interest rate, the speculative motivation is mainly influenced by the interest rate.

generally speaking, the elasticity of money demand to interest rate is low, but it is more elastic to income.

With the increase of income, people tend to turn more income into savings and spend more.

This income elasticity has affected prices, and more consumption has pushed up prices.

Generally speaking, for example, after personal income increases, the demand for products will naturally increase, and people will buy things they wanted to buy before but had no money to buy. For things they bought before, the demand will be even greater. In the past, they bought one unit, and when their income increases to a certain extent, they may consider buying two units. This increases the total social demand. As a result, the price rises in the form of demand growth.

As far as interest rate elasticity is concerned, it mainly affects speculation motivation. When interest rate rises,

people are more willing to deposit money in the bank to earn considerable interest income. If interest rate falls, people are more willing to speculate.

The richness and activity of speculative activities, such as the flood of funds in the stock market, lead to the push-up of asset prices, which in turn leads to inflation. So why controlling inflation will raise interest rates, that is, prevent speculation from overheating.

the concept is rather boring, and it is mainly understood in combination with daily life.