Problem: About the relationship between interest rates and the demand for money I have to say that it is missing a factor called confidence. Many economists have said before that if the rate declined, the demand for money will rise and the contrary would be true. However, real life even if rates declined to historically low rates, if there is no business confidence, the demand for money will decline. This happened in the US during 2002 and 2003. If on the other hand rates increase, but confidence stays high, business will continue borrowing.
Today, rates have declined drastically and business lending and borrowing remains low given poor business confidence?
Comments?