Demand and Supply of Money

The demand for money refers to how much money people want to hold for transactions, savings, and as a precaution against uncertainty. Factors influencing this include income levels, interest rates, and economic stability. On the other hand, the supply of money is how much money is available in the economy, controlled by central banks through monetary policy. When demand for money rises, but supply remains static, it can lead to higher interest rates. Conversely, if more money is supplied without corresponding demand, it may result in inflation, reducing the money's purchasing power. Understanding these dynamics is crucial for economic stability.