<p>Well this depends on parameters of <span class="math-container">$M^d$</span>, but for reasonable parameters <span class="math-container">$M^d$</span> always shifts to the right. I assume your textbook uses linear money demand for example <span class="math-container">$M^d = c - b i$</span> and so on.</p>
<p>Denote <span class="math-container">$[c+θ(1−c)] = \gamma$</span>, then for linear downward sloping demand we have:</p>
<p><span class="math-container">$\gamma M^d = \gamma c - \gamma bi$</span></p>
<p>if <span class="math-container">$\gamma$</span> increases demand shifts to the right for any parameters save <span class="math-container">$c=0$</span> or <span class="math-container">$\gamma=0$</span> (assuming all parameters have to be non-negative). Demand will also become steeper as long as <span class="math-container">$b &gt;0$</span> but you will always</p>

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2023-10-14T10:18:28.267Z
2023-10-14T10:18:28.267Z
1muflon1
<p>Defining the demand for central bank money as <span class="math-container">$ [c + \theta (1-c)]M^d $</span>,
where c = percentage of money people keep as currency, and <span class="math-container">$\theta$</span> the reserve rateo, I don't understand why, as my book states, an increase in either c or <span class="math-container">$\theta$</span> would result in a right shift of the curve.</p>
<p>My reasoning is: <span class="math-container">$ [c + \theta (1-c)]$</span> get's higher and <span class="math-container">$ M^d $</span> is a negative sloped function, therefore <span class="math-container">$M^D$</span> should get steeper.</p>

<macroeconomics>
Why does the demand for central bank money shifts to the right with an increase in the reserve rateo?
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# Why does the demand for central bank money shifts to the right with an increase in the reserve rateo?

(Asked by: username_0 on 2023-10-13)

Defining the demand for central bank money as $ [c + \theta (1-c)]M^d $,
where c = percentage of money people keep as currency, and $\theta$ the reserve rateo, I don't understand why, as my book states, an increase in either c or $\theta$ would result in a right shift of the curve.

My reasoning is: $ [c + \theta (1-c)]$ get's higher and $ M^d $ is a negative sloped function, therefore $M^D$ should get steeper.

**Tags:** macroeconomics


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## 1 answers

### Answer by username_1 on 2023-10-14. Score: 0

Well this depends on parameters of $M^d$, but for reasonable parameters $M^d$ always shifts to the right. I assume your textbook uses linear money demand for example $M^d = c - b i$ and so on.

Denote $[c+θ(1−c)] = \gamma$, then for linear downward sloping demand we have:

$\gamma M^d = \gamma c - \gamma bi$

if $\gamma$ increases demand shifts to the right for any parameters save $c=0$ or $\gamma=0$ (assuming all parameters have to be non-negative). Demand will also become steeper as long as $b >0$ but you will always


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