THE SUPPLY AND DEMAND FOR MONEY.

THE SUPPLY FOR MONEY
This refers to the sum of total of currency in circulation and the demand deposits in the banks. Currency in circulation is made up of coins and notes outside the bank. While demand deposits are current account balance. Currency circulation is the most easily identified components of the money supply because it may be used.

1. For virtually all transaction

2. To price goods and services

3. As an asset
   Demand deposits are the other major assets that perform all monetary functions. These funds are legally required to be available for demand, normally by cheque, debit card, or through automated teller machine. Together, currency and demand deposits are narrowly defined money supply known as M1. only currency held by the non-banking public is included in the money supply.
   Sometimes economists do count certain highly liquid assets, such as savings accounts (time deposit) as part of money supply. The economists who use broader definitions of the money supply than M1 believe that peoples spending levels are more predictable by monetary data if we include liquid assets that are highly interchangeable with currency and demand deposits. For this reason, savings accounts balances become part of money supply, and the concept is usually abbreviated as M2. M2 is made up of M1 plus savings account deposits at the commercial banks.
   THE DEMAND FOR MONEY
   This refers to the amount of money that the public is willing to hold during a given period of time. Under the demand of money there are other sub demand for money which include,

4. THE QUANTITY THEORY OF MONEY: - in the seventeenth century it was noticed that there was a connection between the quantity of money and the general level of prices, and this led to the formulation of the quantity theory of money. In its crudest form it stated that an increase in the quantity of money will bring about a proportionate rise in prices. After being long discarded, the theory was revived in the 1920s by professor irving fisher, who introduced into it the concept of the velocity of circulation.

5. THE KEYNESIAN THEORY OF THE DEMAND FOR MONEY: - J.M Keynes identified the three motives for the demand for money as,

• The transaction demand for money
• The precautionary demand for money
• The speculative demand for money
  TO BE CONTINUED