Monetary Thoery and Policy Essay Example | Topics and Well Written Essays - 2000 words

Monetary Thoery and Policy - Essay Example However, barter had its own complications and lacunas as it sometimes became difficult to exchange two things mutually needed by both of the parties to the transaction. Money emerged out of that necessity. Money by serving as the medium of exchange during the transactions serves both economic as well as social causes. It makes the complicated economic exchanges more convenient and easy to execute besides allowing people to socialize through the ways the do best. (Nash)1 The main objective of money is to arrange transaction between different people and business organizations. The money and incomes are closely related as most of the incomes are obtained in the money hence money is also used to keep the wealth of the persons and nationals. It therefore means that with money: In the early stages of money, the major portion of money possessed by people was consisted of currency and demand deposits however with the passage of time; more substitutes of money became available also. It must also be noted that these different substitutes of money carried the same liquidity like traditional currency however the extent of liquidity varied with respect to the type of substitute. These substitutes included government securities, saving accounts, stocks, bonds etc. though these assets possess the quality of money being the store of value however they are not traditionally being used as medium of exchange. It is because of this reason that they are often termed as IOU or near money. Having served the critical functions and being the core of all the transactions taking place, the demand for money have different dynamics and it is because of this reason that different theories of demand for money have been developed. This essay will explore some of the theories of Demand for Money as a part of the assignment on the Monetary Theory and Policy. Quantity theory of money was presented by the Classical Economists.