ABSTRACT
In reality, of course, there are many different kinds of non-money paper assets. Though money is still the only means of effecting transactions, it is far from being the only means of satisfying liquidity preference. Instead of measuring money, the horizontal scale would measure quantities of liquid assets; the interest rate measured on the vertical scale would be an average of the yields on illiquid assets, the interest on near money itself being ignored. Prices, then, will fall below the price level, thereby increasing the quantity of "real" money, pushing the monetary equilibrium curve to the right, reducing the interest rate, and increasing the volume of output needed to satisfy aggregate demand. Aggregate demand will fall, and output and employment will be reduced. To avoid index-number problems, it is also necessary to assume that the pattern of relative prices remains the same at all levels of output, whatever happens to the general price level.
