How to understand the theoretical elasticity of money demand? The weaker the flexibility, the more effective the monetary policy.

The weaker the theoretical elasticity of understanding the money demand, the more effective the monetary policy is: because the increase of income level increases the money demand under a given money supply, it is necessary to restore the equilibrium of the money market through the increase of interest rate and the decrease of speculative demand, so the LM curve is positive slope.

The slope of LM curve mainly depends on the ratio of elasticity of money demand to income and interest rate. The smaller the elasticity of money demand relative to income, the greater the elasticity relative to interest rate, and the flatter the LM curve. The movement of LM curve is caused by exogenous changes in money supply and spontaneous changes in money demand.

Speculative currency

Speculative money demand is due to the uncertainty of future interest rates, and people adjust their asset structure in time to avoid capital loss or increase capital interest. Money demand can be divided into two forms: nominal money demand at current price level and actual money demand excluding price influence.

Keynes pointed out in Keynes's general model that money is for trading purposes (lt) and value preservation purposes (ls). The "speculative demand" (ls) of money is not an asset used for speculation, but an asset preserved in the form of money to reduce the risk of loss. The "speculative demand" of money has an opportunity cost.