Explain about the short term and long term interest rate in money demand.
The Opportunity Cost of Holding Money Demand:
a. Short-term interest rates
Rates onto assets which come due in less than six-months.
These rates tend to shift together due to basic supply and demand. What is the reason? Investors will shift their money out of any short-term financial asset which offers a lower than average interest rate.
b. Long-term interest rates
Rates onto assets which come due into more than six-months.