The Demand for Money

Abstract

It is possible to identify the influences that could affect the quantity demanded of money by starting with the analysis of simple situations and working on to more complex ones. Suppose that each household (or firm) is quite certain of both the amounts and the dates of its future receipts and payments of all kinds. It could then plan the minimum money balances to be held from moment to moment that would just be sufficient to enable it to make the expected payments. These balances would be held in the intervals of time between receipts and payments, and their sizes would depend on both the amounts of the receipts and the payments and the lack of synchronisation between them [8]. The latter can be explained in part by conventions as to the time intervals at which certain kinds of payments have to be made (e.g. weekly wage-payments). But it depends as well on the voluntary decisions of households and firms as to the frequencies with which they will purchase goods either for immediate use or to add to stock [6]; and also upon the terms on which credit is granted on purchases.