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Money and inflation
 Here in Chicago Board of Trade and Wall Street, 2 of the most important financial centers in the world. |
The functions of Money
- As a store of value does not generate demand
- As a unit of account if people hold it
- As a medium of exchange if people hold it
The Quantity Theory of Money
They control the supply of money by increasing and decreasing the number of dollars in circulation through open-market operations.Money Demand Function
(M/P)d=L(i,Y)
For this demand function, we assume the demand for real money balances depends on both the interest rate and income.Money (M1)
- Currencies and deposits in checking accounts.
- As a store value is always dominated by other assets such as Savings accounts, Treasury Bills, certificates of deposit, etc.
Money (M2)
- Currencies and deposits in checking accounts.
- Includes savings accounts and money market mutual funds.
According to Macroeconomics by Gregory Mankiw
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