Theoretical Analysis of the Demand for Money
9 Pages Posted: 31 Oct 2012
Date Written: 1988
In any discussion of the demand for money it is important to be clear about the concept of money that is being utilized; otherwise, misunderstandings can arise because of the various possible meanings that readers could have in mind. Here the term will be taken to refer to an economy’s medim of exchange; that is, to a tangible asset that is generally accepted in payment for any commodity. Money thus conceived will also serve as a store of value, of course, but may be of minor importance to the economy in that capacity. The monetary asset will usually also serve as the economy’s medium of account - i.e., prices will be quoted in terms of money - since additional accounting costs would be incurred if the unit of account were a quantity of some asset other than money. The medium-of-account role is, however, not logically tied to the medium of exchange.
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