Money

Money is more than just currency—it’s the lifeblood of the economy, shaping everything from individual decisions to global trade. The demand for money reflects how much people wish to hold, influenced by factors like interest rates, income, and overall economic stability. On the flip side, the supply of money is controlled by the central bank, determining how much currency circulates in the economy and affecting inflation and growth.

Various theories explain these interactions, including the Quantity Theory of Money, which links money supply to price levels, and the Keynesian approach, which emphasizes the role of money in stimulating or slowing down the economy.

The IS-LM model brings these concepts together, showing the balance between the goods market (IS curve) and the money market (LM curve). It helps us understand how changes in interest rates or fiscal policies impact output and employment.

Monetary policy, driven by central banks, uses tools like interest rates and open market operations to manage inflation and stabilize the economy, while fiscal policy, implemented by governments, adjusts spending and taxation to influence demand. Together, these policies are crucial for maintaining economic stability, shaping how money flows through the economy.