So M rises if the reserve ratio falls or H rises. We assume M is fixed. The money supply. 3 Financial assets We've already seen that wealth is important for consumption. It is for money demand too.
Money is largely risk free, very liquid but has a low return.
This is a future promise to pay. So as i rises the price of other assets falls. Here's a simple example. This means the demand for money depends on income, Y. The precautionary motive. The speculative motive.