The Dynamic Macroeconomic Model with Money

How the dynamic macroeconomic theory expands with money

This document introduces money into our economy, creating a “Cash-In-Advance” transaction constraint, banks, money as a medium of exchange and credit facilities. First I introduce the credit market and then use this to derive the Money Demand equation. The link between money and credit is the nominal interest rate. After examining the money market, I introduce the concept of money neutrality, and super-neutrality. Finally I show the effects of a one-off, unexpected and permanent increase in the money supply, a growth of the money supply, and The Friedman Rule for controlling inflation.