The money demand function The Quantity Theory of Money assumes that the demand for real money balances depends only on real income y. We now consider another determinant of money demand:the nominal interest rate. -The nominal interest rate i is the opportunity cost of holding money (instead of bonds or other interest-earning assets). ·Hence,个i→↓in money demand. CHAPTER 7 Money and Inflation slide 32CHAPTER 7 Money and Inflation slide 32 The money demand function ▪ The Quantity Theory of Money assumes that the demand for real money balances depends only on real income Y. ▪ We now consider another determinant of money demand: the nominal interest rate. ▪ The nominal interest rate i is the opportunity cost of holding money (instead of bonds or other interest-earning assets). ▪ Hence, i   in money demand