ATMs and Demand for

Money (Page: 531)

BY GROUP 4:
AUBREY DIAN AGUSTINE
FITRI DEVITA
IMAM BUANA LUTHFI
KARINA PERMATA SARI
M RIZKY AULIA
NAJATUSSAADAH

Background

Years ago people visited bank every week to withdrawn their money for
their own purposes. But nowadays, with ATMs spreading every where,
people tend to withdrawn their money through ATM.

In Italy, virtually all checking accounts pay interest. What doesnt pay
interest is cash, which makes:
Checking accounts (interest-earning) = bonds
Cash (non-interest-earning) = Money

Problem
1.

What difference has the spread of ATMs made on the demand for
money?

2.

How the availability of ATMs influence the demand for cash (noninterest-earning money)?

The Difference of Demand of Money

Caused by ATMs

The spread of ATMs made the demand for money lower compared with
years ago. This is due to the simplicity that ATMs have which makes
people could withdrawn the money faster and every time they need
without visiting a bank every week.

This means that the amount of cash needed for consumption got lower
as the ATMs spreading. The transaction using the liquid cash is also
declining as the ATMs spreading.

How the ATMs Influence the Demand of Money

In Italy, the use of ATM increasing during 1989 1995, from 15 % to 40

% of population, which makes the amount of cash divided by total
consumption fell from 3,8 % to 2,8 %.

The amount of interest rate offered by bank influence customer to save

their money in bank, the interest can be considered as additional
income or as the additional saving for the customer.

Costumers would withdraw money from ATM more frequently, but with
lower amount of cash on average

Comments
From group 1:
It says that when ATM is spreading resulted in decreased demand for money, is this situation will
affect the money supply and interest rate on long term basis? And what is the worst case will
happen if people tend to save money in the bank?
Answer:
If many people choose to save their money in the bank will resulted in increase supply of money and
lower interest rate. There are other determinant that cause interest rate to increase, such as inflation
and government policy. Saving money in the bank is not bad thing, in fact it is cost less to hold
bonds rather than hold cash, cash has no intrinsic value except its use as medium of exchange.

Comments
From group 2:
If the amount of cash divided by total consumption
decrease, what is the effect to the market?
Answer:
the declining of the amount of cash divided by total
consumption is one of the result from the declining of
demand of money. And the decreasing of demand of
money itself could affect to the market in money
market. A decrease in the demand for money due to a
change in transactions costs, preferences, or
expectations, as shown in Panel (a), will be
accompanied by an increase in the demand for bonds
as shown in Panel (b), and a fall in the interest rate. The
fall in the interest rate will cause a rightward shift in the
aggregate demand curve fromAD 1toAD2, as shown in
Panel (c). As a result, real GDP and the price level rise.

Comments
From group 3:
Is there any real impact between the availability of ATM and the demand for goods?
Answer:
The demand for goods influenced by taste and preferences, income, prices of related products,
future expectations, and number of buyers. The availability of ATM just influenced the demand for
money, which makes it got lower.
We think that is not the availability of ATM that influence the demand for goods, but the demand for
money that could affect the demand for goods, but not directly. As it said that the price could
influence the demand for goods, we dont think that demand for money directly affects prices.
Typically demand for money pushes up the price of money (i.e. interest rates) and higher interest
rates usually pushes down the price of capital intensive goods (or goods that you'd typically need to
take a loan to buy) like cars and houses. So, we conclude that there is no real impact between the
availability of ATM and the demand for goods