The Demand for Money

In the previous chapter we learned about the various types of monetary aggregates: M1, the most commonly used definition of the money supply, consists of currency in circulation (cash), plus checkable bank deposits, plus traveler’s checks; and M2, a broader definition of the money supply, consists of M1 plus deposits that can easily be transferred into checkable deposits. We also learned why people hold money—to make it easier to purchase goods and services. Now we’ll go deeper, examining what determines how much money individuals and firms want to hold at any given time.