4. Money demand is the total amount of money that people choose to hold in their portfolios. The principal macroeconomic variables that affect money demand are the price level, real income, and interest rates. Nominal money demand is proportional to the price level. Higher real income increases the number of transac- tions and, thus, raises real money demand. A higher interest rate on alternative, nonmone- tary assets lowers real money demand by mak- ing the alternative assets more attractive than money. The money demand function measures the relationship between real money demand and these macroeconomic variables.