Money is a special form of wealth and is the most liquid of all assets since it can be exchange or paid easily in any transactions. It can function as a medium of exchange, store value and unit of account. The demand for money is affected by several factors such as the level of income and interest rates thus, it is a crucial concept for study as the value of money depends on the demand for money.
Monetary Policy is used by the central bank, which is the Bangko Sentral ng Pilipinas, to influence the economy by manipulating the demand for money in different ways such as its open market operations, increasing or decreasing the interest rates, and required reserve requirements imposed on banks etc.
In this study, the researchers use the Liquidity Preference Theory in assessing the relationship of interest rates, income, and money demand using the data obtained from Philippines in year 1987 to 2016 that will enable the researchers to conclude whether the demand for money of the Filipinos is affected by interest rates and income with the assumption that the money market is in equilibrium.
Specifically, the researchers aim to answer the following questions:
• Is there any significant relationship between money demand, interest rates, and income?
• How strong does the relationship of the three variables?
• How does interest rate and income affects money demand?
Along with the stated problems above, the following hypotheses are formulated:
Ho: There is no significant relationship between money demand, interest rate and income.
Ha: There is a significant relationship between interest rates, income, and money demand.