Why when income rises and we in turn consume more does our demand for money rise?What I really want to know is why just because I have a larger income and I am consuming more would I demand more...

Why when income rises and we in turn consume more does our demand for money rise?

What I really want to know is why just because I have a larger income and I am consuming more would I demand more money? I mean I already have enough money that's why I am consuming with my higher income. Why would I now demand more money. if anything I should demand less money because I just got an increase in my income!

Asked on by hjbhhjbj

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herappleness's profile pic

M.P. Ossa | College Teacher | (Level 1) Distinguished Educator

Posted on

Your inference and conclusion would be the ideal answer to the question, yet, the reality is that our current economy although is making us try to save more money, is also making us more greedy. How? By making things so much cheaper that we (unknowingly) jump on it, and tend to end up spending more.

It is not the fault of the numbers, or the amount of money you are getting, but mostly the fault of human psychology: When something is "there" and "available", we just jump on it. We only realize how much we have bought and indulged on AFTER the fact.

Now, if your question is a moral one and an ethical one, the answer goes back again to human psychology and nature. NO human being- unless prompted by a motivational factor that would bring to him a similarly enticing result- will give up an earned reward. Period.

Example: How come people spend more on stores who sell for less? Because our nature is to get more for less.

Conclusion: It is a tendency in humans to want more for less, and to want instant gratification, and rewards for every single thing we do. THAT is why end up spending more than what we are given and THEN require more in the end.

The theories of motivation of Skinner, Erickson, Freud, Bandura, and Gardner back this premise.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

The important part of your question here is the part where it says that we consume more.  When we consume more, we need more money.

I think what might be confusing you is the idea of demand for money.  Remember that money is not the same as wealth.  For example, let's say you get paid and you are going to investing most of your pay.  You are not demanding much money there because you are taking your wealth and buying stocks, for example.

But if you are going to consume, you are going to need money.  That is, you are going to need something to serve as a medium of exchange.  So you are going to need more cash rather than more things like stocks or bonds.

So the important thing here is to think of money in terms of cash -- stuff you can spend.  The more you want to spend, the more you need money.


krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

Demand for money in economics refers to the demand for borrowed money. Demand for money has no direct relationship with the income level. Rater it is more related to the expected income. When consumers expect their income to be higher in future they have greater propensity spend more on credit or borrowed money in expectation of their future ability to repay the money borrowed.

The only link in rise in income and rise in borrowing could be that current increase in income also increases our expectations for future increase also.

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