The Demand for Money by Individuals Three factors influence money demand ● Expected return Risk ° Liquidity Expected Return The interest rate measures the opportunity cost of holding money rather than interest-bearing bonds A rise in the interest rate raises the cost of holding money and causes money demand to fall Copyright C 2003 Pearson Education, Inc Slide 14-8Copyright © 2003 Pearson Education, Inc. Slide 14-8 ▪ Three factors influence money demand: • Expected return • Risk • Liquidity ▪ Expected Return • The interest rate measures the opportunity cost of holding money rather than interest-bearing bonds. – A rise in the interest rate raises the cost of holding money and causes money demand to fall. The Demand for Money by Individuals