interest-elasticity of the demand for money

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The proportional change in the quantity of money demanded divided by the proportional change in interest rate. This is a measure of the responsiveness of the demand for money to changes in interest rates. A minus sign is typically inserted into the definition to make the elasticity a positive number. The elasticity, ε, is given bywhere M is the demand for money and i is the interest rate.

Subjects: Economics.

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