Abstract
This chapter is an introduction to monetary theory. It introduces and discusses the connection between two important ideas: monetary equihbrium and Say's Principle. Monetary equilibrium occurs when the total or aggregate demand for money by people in the economy equals the existing stock of money made available by the joint actions of the Federal Reserve and the banking system. Realization of monetary equilibrium requires the presence of forces that also produce an equilibrium between the aggregate supply and aggregate demand for goods and services in the economy. Forces that disturb the equilibrium between the demand for and stock of money can also disturb the equilibrium between the aggregate demand for and supply of goods and services. We will discuss these forces in detail in Chapters 13, 14, 15, and 16.
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