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NOTE 11.03. Changes in the Money Relation

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3. Changes in the Money Relation

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The purchasing power of money is determined by two factors, the total demand schedule for

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money to hold and the stock of money in existence. If the stock of money is decreased, there

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will be an excess of demand for money at the existing PPM and the PPM will rise until the

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The New Equilibrium Point is reached.

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The absurdity of classifying monetary theories into mutually exclusive divisions, such as

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Supply and Demand Theory, Quantity Theory, Cash Balance Theory, Commodity Theory, Income

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and Expenditure Theory, should now be evident.

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For all these elements are found in this analysis.

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Money is a commodity. Its supply or quantity is important in determining its exchange value.

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Demand for money for the cash balance is also important for this purpose, and the analysis

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This can be applied to income and expenditure situations.