ABSTRACT
This chapter discusses about the conventional demand for money. It points out the problems with the standard Keynesian view and the standard monetarist view of the demand for money. Keynesian policies to work in the short run must be a significant interest elasticity to the demand for money if there is also a significant income elasticity. Keynesians have attempted to show such an interest elasticity, but they have not been entirely convincing that it is of large magnitude in the short run. The chapter examines the transactions demand for money. Persons who take out loans have a finance motive for holding money. Their average holdings amount to virtually nothing if they hold the cash for a very short period of time. In conclusion, the trade credit, long run demand and short-run demand problems of the traditional quantity theory are solved by zero-income elasticity approach.
