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Understanding some conceptual issues in money demand
Member rating: No Rating | Words: | Submitted: Tue Jun 20 2006
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Understanding some conceptual issues in money demand Definitional issues What is money? Money represents an implicit social contract by society between present and future purchasing power. It is a form of asset, which represents claims by individuals and firms against the government and financial institutions and a liability for the latter. In an economy without money one would need to engage in barter transactions, where goods are exchanged against goods. There would be tremendous inefficiencies in a barter economy due to the problem of arriving at a "double coincidence of wants" every time one wishes to engage in a transaction. One would need to find the right exchange partners both in terms of the products and the quantities desired. The inefficiencies of such an exchange system, the high time and transactions costs, and the limits imposed on the number of transactions are evident. Therefore, money serves a very important function by removing the need...
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