Liquidity Preference: Gregory Mankiw among Other Economists is Totally Wrong
I quote the following from Chapter 11 of N. Gregory Mankiw, Macroeconomics : The underlying reason is that the interest rate is the opportunity cost of holding money. …. The demand [for money] is downward sloping because a higher interest rate raises the cost of holding money and thus lowers the quantity demanded. Really amazing is that according to what I learned as a sophomore merely two sentences as above contains numerous fallacies. Fallacy No. 1. The opportunity cost of holding money is what we need most desperately at the particular accounting period of time. Over all else, some would choose apples while others movie-going. F2. There is no such thing as demand for money. Demand represents the quantity of a certain object wanted in the accounting period of the narrator’s interest: for instance, half a dozen units of apples per week . F3. There is no such thing as demand for money. In the monetary economy , all demand pays and all supply is paid with...