ABSTRACT
In this chapter, we will define what money is, discuss the supply and demand for money, and learn about Chinese monetary policy. In the process, we will not only understand what money is conceptually, but also institutionally. How money is supplied to the economy is, at its core, an institutional question based on how a country’s central bank and banking system operate and are structured. The question of why individuals and institutions in an economy want to hold on to money-the demand for money-raises interesting conceptual and theoretical questions (addressed in Chapter 8). In this chapter, we focus on the institutional framework for monetary policy in both the United States and China. These two large economies make for some interesting comparisons and contrasts both historically and contemporaneously in terms of monetary economics. We care about money not only because of its relationship to institutions and its role as a key asset, but also because the amount of money in an economy has profound effects on inflation, interest rates, short-term economic growth, and employment.
