In the Cambridge Cash Balance Approach to money demand (M = kPY), ‘k’ represents:

AThe velocity of money circulation

BThe real interest rate

CThe fraction of nominal income individuals desire to hold as cash balances

DThe marginal propensity to consume

Explanation

In Pigou and Marshall’s Cambridge equation, k represents the proportion of nominal income people prefer to hold in liquid cash balances (k = 1/V).

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