June 01, 2004
The Demand for Money
The demand for money is one of the most controversial topics in economics. We will consider a simple transactions demand, but keep in mind that, since money does not appear in agents' utility functions, the theories of the demand for money are unconventional.
The Supply of Money
The institutional details determining the supply of money (demand deposits plus currency) are fairly straightforward.
Monetary Economics
Monetary economics is the most challenging area within the discipline. Our usual opening runs into problems right from the start.
It not thought to be reasonable to simply put money in people's utility functions because money only yields utillity in the sense that it can be exchanged for goods. In fact, an n good n prices system really requires only n-1 prices. If one of the goods is taken to be the unit of account (money), then only the other n-1 goods have prices.