Essays on The Post Keynesian Theory and Its Relation to Demand and Real Balance Assignment

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The paper "The Post Keynesian Theory and Its Relation to Demand and Real Balance" is a great example of an assignment on macro and microeconomics. The demand for money arises simply because money is a means of exchange and a store. This explains why individuals and business firms hold money in terms of assets and paltry. There is a direct link between the demand for money and the income level as persons with a higher income level have high demands for money and vice versa. In addition, the view of substitution holds a high course in defining the demand for money as it links the relative attractiveness in assets that can be substituted for money.

When alternative forms of the store for money like shares and bonds become valueless people and firms prefer to store their value in form of cash thus increasing the demand for money. This divides the two modes of the demand for money as a precautionary and transaction. The theory of demand for money was not explicitly formulated by the classical economists who emphasized the demand for money in terms of the transaction.

They focused on the velocity in the circulation of money. When analyzing the transaction demand for money depending on behavior as individuals tend to hold on to handle cash balances that can do a particular job at the lowest cost possible. If for instance, an individual will transact a business and payout T pounds at a steady flow the cash he transacts with is either borrowed or withdrawn from a particular investment. This implies that his interest rate is I pounds per pound per period.

If the same individual withdraws more and more C pounds at intervals spacing annually it implies that he will be able to part with a set fee of B pounds. This implies that H the transaction value is predetermined and I and B are expected to be constant. In this case, C is either less than or the same as T and will enable him purchase or transact a business as long as he withdraws his cash more often. If T 300 pounds, he can be able to transact his business by often withdrawing 150 pounds for every 6 months and 75 pounds in every 3 months.

His withdrawal over the year will be T/C.

References

Fisher, D. "The demand for money in britain : quarterly results 1951-67", Manchester School, 36, 1968.

Friedman, M. "The quantity theory of money : a restatement", Chicago University Press, 1956.

Goldfeld, S The demand for money revisited, Brookings paper on economic activity, No. 3, 1973.

Karni, "The value of time and the demand for money", Journal of money. credit, and banking, 6, 1974: 45-64.

Keith Cuthbertson, "Modelling the demand for money", in Christopher Green and David Llewellyn (eds.), Surveys in monetary economics. Vol. 1, Basil Blackwell Ltd., Oxford, U.K., 1991 : 3.

Lewis, M K and Mizen, P D, Monetary Economics, Oxford, 2000.

Michie, J Managing the global economy, Oxford University Press, 1995.

Baumol, J the transactions demand for cash: an inventory theoretic approach, Quarterly journal of economics 66545-556, 1952

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