Question

In the united states, what does the general level of a family’s income have to do with the amount of cash the family is likely to hold?

Answer 1

Answer:

The higher the household level of income, the higher the cash the family is likely to hold at each interest rate, and the lower the level of income, the lower the amount of cash the family is likely to hold at each interest rate.

Explanation:

The demand for money falls within the realm of liquidity preference. Money like any other normal goods responds positively to the level of income.

As the level of household income rises, the more transactions they are likely to do, all things being equal, money being a medium of exchange will be required to support the intended level of transactions. The opposite will happen if the level of household income falls.

Friedman postulated that Individual’s demand for money directly depends on his total wealth holding.