Explain the quantity theory of money and explain how the money demand, money supply, and quantity of money are related to each other? Which variable (s) will be affected if the money supply increases in the economy? Take in context to what has been happening in the U.S economy in the past few years
Explain the quantity theory of money and explain how the money demand, money supply, and quantity of money are related to each other? Which variable (s) will be affected if the money supply increases in the economy? Take in context to what has been happening in the U.S economy in the past few years.
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Money demand and money supply:
Money demand is the net demand for money made by all agents of an economy. Money demand consists of two components- transactional and asset demand.
Whereas, the money supply is the total supply of money injected into the economy by its central bank.
At money market equilibrium, the supply equals the demand.
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