Demand for money and offer on them
Demand for money is a need for a certain amount of money. It is determined by the amount of material the firm and the population want to keep in checks and cash.
Demand for money is a natural phenomenon in the market. We can consider two approaches that explain it:
- classical (monetarist);
- Keynesian.
The classical approach determines the demand for monetarymass from the position of the equation: RU = MB, while M - money in circulation, B - the speed with which money flows, P - price index, Y - the size of the issue. It should be taken into account that the speed is a constant value. When considering the situation in the long run, of course, B can change. For example, if new technologies appear in the banking sector.
From the above equation, one can makethe conclusion that the money supply depends on the dynamics of changes in GDP or Uzbekistan. If this value increases by 3% per year, then the demand for money will grow by the same amount. Hence, the demand function for cash is fairly stable.
As in any market, together with the needsthere are those who are ready to satisfy them. The supply of money is quite unstable, it depends on the decisions of the government. But according to the classical theory, real GDP or, on the contrary, varies slowly. A significant role here is played by production factors, which are usually quite stable in the short run. Therefore, it is better to consider changing the money supply within one year or more. This indicator has a significant impact on the price level and has virtually no impact on employment. This phenomenon in the economy was called money neutrality. The rule of monetarists says that the state should strive to maintain the growth rate of the mass of money at the GDP level. Then their supply will be in line with demand, and prices in the economy will be stable.
The quantitative theory explains two motivationsmoney demand. The first is that companies and people need money, because it is a transaction servicing tool. The purchase of goods or services occurs for the most part when exchanging them for bills and coins. Less often the buyer and seller use barter - the exchange of goods (services) for another product (service). The need for funds for purchases is called the demand for money for transactions. Consider several factors that affect it:
- the volume of goods currently on the market;
- level of prices for services and goods;
- speed of money circulation;
- national income.
But the greatest impact is the level of income: M = Ufakt. Here M is the demand for money, Ufakt. - national income.
The second motive of money demand is connected with purchaseson precaution. He arises due to the fact that people often have to deal with payments that they could not foresee before. Therefore, they should always have at least a small amount of money. Monetary demand, according to the above formula, is directly proportional to national income.
Both motives of money demand do not come into dependence on the interest rate. On the graph, the demand line looks like a straight line, located vertically.
J. Keynes singled out the third motive for keeping money-speculative. It implies that if the savings are kept at home, then the owner misses the possible profit. That is, money could be invested in less liquid assets, but more profitable. The demand formula looks like: M = Ifact. Here is the fact. Interest rate level. The relationship between these indicators is directly proportional. In a graphic form, the line of speculative demand is a curve with a negative slope.
Control over the money supply in the country is carried out by the Central Bank. It is necessary that the purchasing power of money is at a stable level.
