The demand for money in an economy is influenced by transaction, precautionary, and speculative reasons. People choose between holding money or bonds based on interest rates, with higher rates leading to more bond demand and less money demand. Changes in real GDP, price levels, transfer costs, expectations, or preferences can also affect money demand. When money supply or demand shifts, it can impact interest rates, real GDP, and price levels. The quantity theory of money suggests a long-term relationship between the amount of money in circulation and the price level.