ABSTRACT
The essential characteristic of money is its general acceptability in exchange for other things. By the test of general acceptability, however, currency and coin are far from being the most important form of money. Until the period between First World War and Second World War, most economists paid little attention to the demand for money as an asset on the ground that rational individuals would hold only the amounts they needed to make current payments. The demand for money for transactions and precautionary purposes thus depends on the volume of output; the general price level; and the level of interest rates. However, an excess or shortfall of the demand for money against the supply of it is likely to upset any previously existing equilibrium in the rest of the economy, while disturbances in the markets for commodities and labor will themselves upset the balance on the monetary side.
