What factors affect the cost of money?

Answer 1

• the level of prices

• the level of interest rates

• the level of real national output (real GDP)

• the pace of financial innovation

Answer 2

The demand for money determined by a number of factors and the most important of which have been indicated below:

1. The nature and variety of substitute assets. If other assets available for holding are highly illiquid and risky, the demand for money is likely to be high;
2. The wealth of the community: The richer the community, the greater will be the demand for money.
3. The ease and certainty of securing credit: People like to hold larger money balances if the credit is not available easily or when its availability is uncertain.
4. The system of payments in the community: The demand for money is affected by the frequency, regularity and correspondence between the time and amounts of money receipts and disbursements. The greater the frequency and regularity of receipts and disbursements, the smallest is likely to be the quantity of money demanded relative to expenditures. The greater number of transactions, the larger is the demand for money likely to be.
5. Expectations as to future income receipts. The people will increase their demand for money balances when they fear that their future income receipts will be less certain and may decline seriously.
6. Expectations as to prices: The people are in a position to hold money when they expect the prices to fall. In that case, the purchasing power of money rises and the value of goods depreciates relative to money.

Reference: http://www.slideshare.net/Classof1HomeworkHelp/the-total-demand-for-money

Answer 3

Production opportunities, time preferences for consumption, risk and inflation.

Answer 4

There are an unlimited number of factors that affect the cost of money. These factors include supply and demand of the products sold for money.

Answer 5

income, prices and interest rate