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What Is Cash Balance Theory Of Money?

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Nouman Umar Profile
Nouman Umar answered
The Cambridge economists Marshall Pigou, Robertson and Keynes developed cash balance approach to the quantity theory of money. It is an improved design of Fisherian quantity theory of money put forward by an American economist Irving Fisher. The Cambridge cash balance approach considers the demand for money not as a medium of exchange but as a store of value. According to the cash balance approach, the value of money is determined by the demand for and supply of money.

The demand for money is the determination of the people to retain the purchasing power to obtaining goods and service at a particular moment of time. The demand for money or cash balances thus is induced by household and businesses to keep the wealth in the form of money to pay for the goods and also to hold assets in liquid form so that they can meet any unexpected and unforeseen developments. The demand for money is a certain portion of annual national income which people want to hold in cash or in the form of money for the transaction and precautionary motives.

Since the supply of money at a particular moment of time is fixed therefore the changes in the price level depends upon the changes in demand for holding money or cash balances.
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Anonymous answered
Discuss the cambridge cash balance apporach to the quantity of money. How far it is supier to the cash transactions approach?
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Anonymous answered
A theory that determine the value of money through the demand and supply relationships.

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