The Demand For Money
Well, that’s an odd title, I’ll grant you that.
Really, what we’re addressing here is the demand for fiat currency.
Recall in previous posts we found Demand Frontiers for multiple markets. Sometimes these curves have breaks. Such is the case for fiat currencies. As shown in the diagram, this market has an Upper Demand Frontier and an Outer Demand Frontier.
Upper Demand Frontiers emphasize the price-limiting boundary for a market, while Outer Demand Frontiers focus on the quantity-limiting ability of a market to absorb the product. These boundaries help countries’ central banks to figure out how many currency units to issue.
What maintains the price of any currency? Please look at the next post for the first of two answers.