This chapter explains the nature of money as a unit of account, medium of exchange, and as a store of value, and addresses the problem of introducing money using rigorous dynamic models. It begins by showing that there are good economic reasons for the adoption of monetary exchange for both information and transactions costs. It then presents two Dynamic Equilibrium models, namely Money in the Utility Function (MIUF) and Cash in Advance (CIA) to prevent puzzles and paradoxes from arising from the use of Overlapping Generations (OLG) models. This chapter also includes sample problems regarding OLG money, inflation and determinacy; naäve versus rational expectations in the monetary OLG model; money process and nominal interest rate; and synthesis between MIUF and CIA.
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