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VOLUME
Vol.05 Issue03 2025
PAGE NO.
18-25
10.37547/ijmef/Volume05Issue03-03
Analysis of the Economic Ideas of Monetary Neutrality
and its role in Modern Monetary Policy
Haqi Ameen Tomas
Al-Furat Al-Awsat Technical University, Iraq
Abaas Asfore Lafta
Faculty Of Administration And Economics, University Of Kufa, Iraq
Atheer Abdullah Oliewi
Imam Alkadhum Collage, Dhi Qar, Iraq
Received:
04 January 2025;
Accepted:
06 February 2025;
Published:
10 March 2025
Abstract:
Economic opinions and ideas about the idea of monetary neutrality and its role in market stability are
one of the important pillars of economic research, given that these ideas give the real dimensions of everything
related to this idea and the importance of applying it at certain times and avoiding applying it at other times.
Perhaps economic thinkers have surrounded this idea with everything necessary in order to give economic
research in the field of the market an important space to put a set of options available from the monetary
authority on the one hand and the government on the other hand. On this basis, the research reached a set of
results that can be summarized: the volume of production is determined according to the classical hypothesis by
real factors, represented by the number of real means of production available in the economy, whether natural
or human, and the volume of production is always at the level of comprehensive use, and any level below that
does not exist. They based their hypothesis on Say's law, where the supply of goods and services creates demand
for them, meaning that the volume of goods and services is constant at the level of comprehensive use and only
in the long run.
Keywords:
Monetary policy, monetary neutrality, economic theory.
Introduction:
The topic of monetary neutrality is one of
the theoretical challenges that has faced many
criticisms from economic schools. To reach a realistic
understanding of this concept, the researchers believe
that it is necessary to identify this concept and
surround this topic with the most important theoretical
treatments that adopted the idea of monetary
neutrality and its importance in controlling the market
through the effective role of monetary policy
represented by the central bank, in addition to the
most important duties that the government must
perform to facilitate the process of controlling price
fluctuations in the market. On this basis, the topic was
covered by reviewing the most important economic
theories through the opinions of economic thinkers
who addressed the idea of monetary neutrality.
CHAPTER ONE
The Neutrality of Money: Concept and Theories
he idea of the neutral role of money has a longer history
than the idea of the neutral role of the interest rate; the
neutrality of money is studied by studying the
monetary equilibrium and its effect on the real
equilibrium, which requires analyzing the causal
relationship between money and economic activity by
measuring the effect or lack thereof of changes in the
quantity of money issued on economic activity; the idea
of money being neutral means that an increase in the
quantity of money must lead to an increase in the
general price level, and affect all prices in a regular
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manner and in the same proportion, leaving the
relative exchange values unchanged. Then money is
neutral and will have no overall effects on production
and employment relative to changes in the quantity of
money (Galbraith & Darity, 1994, 287). Hayek is
believed to have been the first to refer to the term
neutrality of money, and this concept first appeared
during the interwar period, that is, during the thirties of
the twentieth century (Sayed Hassan, 1985, 194).
Hayek suggests defining a neutral or negative role for
money that would allow it to play a positive or effective
role in the economy, meaning that money, from his
point of view, should not have any effect on economic
activity (Ajina, 1971, 157). and money should not have
any inflationary or deflationary effect on economic
activity. Its basic function, according to this concept, is
limited to facilitating production and consumption
only, through its use as a means of payment and a
measure of value expressed in prices, as a measure of
deferred payments, and a means of accumulating
wealth when used as a savings tool. Supporters of
neutral money believe that changes in the quantity of
money are the main cause of economic disturbances.
Accordingly, if money can be kept neutral or negative,
then fluctuations in the price level and the volume of
economic activity will be minimal or largely eliminated
(Sayyid Ali, 1970, 57)( Ajina, 1971, 158) (Sayyid Hassan,
1985, 65). But even in such a neutral role for money,
most economists concede that a change in the quantity
of money may have some short-term effects on output,
and this is true unless there has been a more or less
simultaneous proportional increase in all prices with
changes in the quantity of money.
Traditional economists believe in their analysis that if
an increase in the amount of money leads first to an
increase in product prices at a rate higher than the
increase in wages, it leads to an increase in the rate of
profit, and then it is an incentive for producers to
increase production, i.e. production and employment
will rise and money will be non-neutral. Conversely, if
wages rise at a rate higher than the increase in prices,
the rate of profit and production will witness a decline
due to the non-neutral role of money. More precisely,
supporters of neutral money assert that money is
neutral only in the long run, where the price level is
determined by its relationship to costs at the initial
equilibrium point for the level of production (Galbraith
& Darity, 1994, 281 288). The founder of the Scottish
school, David Hume, also presented a document in
which he presented the hypothesis of the neutrality of
money, in which he explained that doubling or halving
the quantity of money during the settlement process
can lead to effects on the level of employment and
productive capacity (Galbraith & Darity, 1994, 238 239).
Keynes was able to add a new and different
contribution to his analysis of the role of money, as he
confirmed that the neutrality of money is through the
effect of changes in the quantity of money on the
interest rate, and then its effect is reflected on the
prices of all assets in relation to their production costs
and thus affects the investment rate and the level of
production, as the increase in the quantity of money is
likely to reduce the interest rate and raise the price of
capital assets, which stimulates an increase in the
production of capital assets and thus increases both
investment and production in the economy (Keynes,
1964, 137). James Tobin contributed by developing the
Keynesian concept in his work entitled "A Dynamic
Assemblage Model", where Tobin considered money as
one of the many assets of capital, from which
individuals choose to keep it in their wealth portfolio,
and Tobin considered that all of these assets are
alternatives, and then the preference for owning
money is an alternative to owning other assets of the
capital formed in the economy (real physical assets),
and that an increase in the amount of money would
affect the relative prices of assets - a decrease in money
prices and an increase in the prices of other assets - this
leads to a change in the composition of individuals'
portfolios, and thus is reflected in investment, which in
turn determines the growth rate of the capital stock
and then affects the real production rate in the
economy, thus confirming the previous Keynesian
analysis of the role of money in the real econom
(Galbraith & Darity, 1994, 289). To make the role of
money neutral in the economic system, monetary
authorities should practice a flexible policy towards the
money supply in order to confront the fluctuations that
occur in the flow of money income andThe central bank
has complete control over the quantity of money
(money issue) and strips commercial banks of their
ability to create money through the demand for cash
deposits, and does not allow them to lend except
through depositors' savings. Thus, achieving economic
stability is achieved by setting an equilibrium interest
rate that achieves equality between savings and
investments to avoid economic turmoil. To achieve
equilibrium, the central bank is required to follow a
flexible policy in the money supply by controlling the
increase or decrease in the money supply to confront
changes that may occur in the flow of cash income or
in the speed of money circulation, in addition to
changes that may occur as a result of hoarding and
changes in the size of the population (Ajina, 1970, 159).
Wicksell emphasizes the role of banks in achieving
monetary equilibrium within the economic system by
banks following a regular interest policy and
monitoring the price movement to make appropriate
and necessary adjustments to the cash interest rate in
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order to achieve equilibrium between it and the real
interest rate (Al-Dulaimi, 1990, 432). However, money
has other functions
–
dynamic
–
as it does not stop at
its neutral functions only, but rather affects the
economic system through its impact on the general
price level and economic activity; the amount of
money, the speed of its circulation and spending, and
the degree of liquidity of various monetary sources
effectively affect the demand for goods and services
and thus the general price level, the effect of which is
reflected in economic activity, as changes in the
amount of money affect consumption and production
in particular and thus economic activity in general as a
result of the surplus or shortage in the amount of
money needed to maintain the stability of the real
value of money and thus the level of general activity
(Sayyid Ali, 1970), 57 58); thus, it is noted that money
has different dynamic functions by using it as a tool for
economic policy and a means of government
intervention in various economic activities. Modern
developments in monetary theory have clarified and
emphasized the role of money in the economy through
its impact on the general price level, the level of
employment and income, the distribution of wealth,
and government financing (Sayyid Ali, 1970, 57 58). In
summary, modern developments in monetary theory
have moved from emphasizing the neutrality of money
to emphasizing its dynamic functions. Money is neutral
in normal, natural conditions and has no effect on the
real balance in the economy, on equilibrium relative
prices, the interest rate, and real production according
to the traditional hypothesis (M.C. Vaish, 1979, 77).
Traditionalists believe that there is a natural economic
system that works in harmony and agreement between
the real relationships in the economy if left to the
forces of nature without the intervention of
authorities. Then it is neutral and has no effect on tThe
important determinants of the basic variables in the
economy, use and production are real non-monetary
factors, and money only performs the function of
facilitating the exchange process at the level of
comprehensive use and flexibility of prices and wages,
but it has become clear that the economy is not always
at the level of comprehensive use, nor are prices and
wages highly flexible, and thus it has become clear that
money is not neutral as was believed, but rather has an
impact on economic variables through its functions as
a store of value and a means of payment in the future,
meaning that it has far-reaching effects on the
economy in terms of use and production, in addition to
its impact on the price level; This is what the modern
monetary theory confirmed through its criticism of the
traditional theory and its hypothesis based on the fact
that the size of real production depends on natural and
human resources without money having an effect,
while modern developments have proven that the
economy is exposed to monetary and non-monetary
factors that interact with each other to generate
important effects on economic relations. (Sayyid Ali,
1970, 58) (Al-Dulaimi, 1990, 388).he real economic
variables (Al-Dulaimi, 1990, 392)
Neutral interest rate:
The Swedish economist Knut Wicksell, the founder of
the Swedish economic school, was the first to introduce
the concept of the natural rate of interest, by
distinguishing between the market rate of interest and
the natural rate of interest, which is attributed to him
through his famous work entitled "Interest and Prices",
which was published in German in 1898, and then
translated into English and published between 1936
and 1943, which witnessed wide interest from
Cambridge University economists (Galbraith & Darity,
1994, 286). The importance of Wicksell's work lies in his
emphasis on the two most important factors that
contribute to determining the total monetary spending
in the market and thus the price level, namely the
interest rate and investment spending, and his
emphasis on the importance of the interest rate in
determining the general price level. Wicksell also
succeeded in finding the means that connects
monetary theory with economic theory - the theory of
value - and considered the interest rate to be the
intended means by distinguishing between two types
of interest rates (Sayyid Ali, 1970, 178); The first - the
natural or real rate of interest, which Wicksell defined
in different forms through his writings:
1- It is the price at which the demand for capital
prepared for lending is equal to the supply of savings
2- It is the rate at which the stability of the money
supply and the stability of prices are consistent
(Jhingan, 1983, 357)
3- It is the price that matches the expected return on
new capital
4- The ratio between the expected net return from new
investment and the cost of this investment, i.e. the
marginal efficiency of capital in the concept that Keynes
later came up with (Sayyid Ali, 1970, 179).
5- It is also the rate that matches the zero inflation rate
Galbraith & Darity, 1994, 286))
Second - Market Rate of Interest: Unlike the natural
interest rate that balances the expected flows of
savings and investments in advance, the market
interest rate balances the demand for money and the
supply of bonds and securities (Tanner, 1975, 173)
Wicksell built his theory on a number of assumptions:
the economy operates at full employment, investment
is a decreasing function of the interest rate, and saving
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is an increasing function of the interest rate. Within the
framework of Wicksell’s concept in analyzing monetary
theory, when the natural rate of interest equals the
market interest rate, monetary policy is neutral,
meaning that monetary policy does not lead to
expansion or contraction in aggregate demand. On the
other hand, if the market interest rate is not equal to
the natural rate, monetary policy is not neutral, and will
lead to a difference in the output from the equilibrium
level in the long run (Jhingan, 1983, 357-358) (Tanner,
1975, 173). The difference between the two rates has a
different effect in the short run than in the long run; the
difference between the two rates in the short run leads
to a change in the price level, and the market interest
rate is more flexible and responsive to changes in the
demand for monetary lending. On the other hand, the
difference between the two rates in the long run will
automatically generate a large force that achieves the
state of equality (Jhingan, 1983, 358) (monetary policy
(interest rate) is neutral only when the natural interest
rate is equal to the market interest rate, but the actual
reality indicates that the chances of the possibility of
equality occurring are slim, due to the cumulative
processes of capital that generate a state of
disequilibrium on the condition of positive investment,
which increases at constant rates over time, which
occurs when the market interest rate is lower than the
natural interest rate.
The relationship between saving and investment
The curve I represents the investment demand curve or
the lending demand curve and S represents the savings
supply curve money allocated for lending and rm the
market interest rate. At the market interest rate rm, the
investment demand (demand for loans) is greater than
the supply of savings by distance (AB) This leads to
banks expanding lending to meet the increasing
demand for investment goods. Thus, the aggregate
demand for money exceeds the available money
supply. If the economy is operating at full employment,
the increase in demand for goods and services leads to
an increase in prices. As a result, the increase in
demand for money leads to an increase in the market
interest rate. As this rate increases, money incomes
expand, and the demand for money for transactions
increases over the available money offered for lending.
Assuming that there is no increase in the money supply,
the market interest rate increases to become equal to
the natural interest rate at point E, as shown in
(Jhingan, 1983, 358 359). Conversely, if the natural rate
of interest is lower than the market rate, then the
supply of money is greater than the demand, i.e. the
demand for lending money is less than the supply,
leading to a decrease in the market rate toTo be equal
to the natural rate (Jhingan, 1983, 358 359); but here it
must be noted that the natural rate of interest is not
fixed, as it depends on the efficiency of production of
the available quantities of fixed and variable capital,
and this is consistent with what Keynes came after him
through his emphasis on the concept of marginal
efficiency of capital, as both of them - Keynes and
Wicksell - confirmed that the expansion of investment
depends on increasing the percentage of expected
profits from new capital goods over costs (Hansen,
1949, 89 90) (Keynes, 1964, 135 14), in other words -
Q
n
r
n
r
m
B
A
E
S
S, I
r
0
I
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the state of imbalance resulting from the cumulative
processes of capital resulted from the increasing
demand resulting from innovation and technological
progress processes that raised the level of expected
profits for new investments
Point E represents the initial monetary equilibrium
point, where the savings and investment curves are
equal at that point, and the natural interest rate and
the market rate are equal at the interest rate r. An
increase in the demand for borrowing leads to a shift in
the investment demand curve upward to the right from
I to I1, which in turn leads to an increase in the natural
interest rate to r1 at point E1 (the intersection of I1 and
S). If the monetary authorities do not intervene to raise
the market rate (given that the market rate may be
determined by an administrative decision from the
monetary authority) (Sayyid Hassan, 1985, 200 201),
banks will expand their lending at that rateAs a result
of the increase in demand, the increase in demand for
money leads to an increase in prices and then the
aggregate demand increases along the horizontal axis
at the market interest rate r, which is determined by
t
he banks’ supply curve by distance, and with the
increase in demand resulting from the increase in
investment to I1, the banks increase their money
supply by distance, and the horizontal line represents
a perfectly elastic supply function which is equal to the
new investment demand curve I1 at point A; the
increase in investment demand is compensated by the
increase in the quantity offered for lending by the
banks, and with the increase in the money supply, the
demand for capital goods increases, and then leads to
an increase in the demand for goods and services, and
as a result leads to an increase in prices, and the
processes of monetary expansion and the increase in
inflation rates in prices lead to an increase in the
market interest rate r to the level of the natural interest
rate r1 (Jhingan, 1983, 359 360). However, the
continued demand for borrowing gradually leads to a
reduction in the amount of surplus balances prepared
for lending in banks, due to double withdrawal,
whether due to the rise in prices resulting from the rise
in costs or as a result of the decline in the real value of
these balances, both of which lead to raising the
interest rate in the money market above the natural
interest rate, and then the economy is in an upward
phase due to inflation resulting from attracting
demand, as the interest rate increases to a greater
degree than the rate of increase in the prices of goods
and services, which leads to an increase in production
costs, the effect of which is reflected in a decrease in
profits and the investment rate, which causes
abstention from borrowing (Sayyid Hassan, 1985, 201);
on the other hand, if inflation is driven by expenditure
the supply side then the natural interest rate that
generates the equality of savings and investment may
not achieve price stability, and on the contrary, the
interest rate that gives price stability may be very high
(Galbraith & Darity, 1994, 286).
Within the framework of Wexley analysis, measuring
the gap between the natural interest rate and the
market interest rate is the best indicator of the degree
of impact of non-neutral monetary policy. The analysis
depends on the degree of flexibility of monetary policy;
if monetary policy is inflexible, the market interest rate
Q
1
r
1
r
A
E
E
1
S
S, I
r
I
1
I
Q
0
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is higher than the natural rate, which leads to savings
exceeding the required level of investment and thus a
decrease in the level of output (income); conversely,
when monetary policy is flexible, the market interest
rate falls below the natural rate, which leads to
investment exceeding the level of savings, and as a
result an increase in the level of output. To clarify the
previous analysis in a more precise form)Tanner, 1975,
173-174)
Classical understanding of monetary neutrality:
Say's views were taken as a basis for formulating many
economic views in both England and France until the
beginning of the current century. Walras followed the
same line taken by the French Economist Say, who tried
to prove that every supply always creates demand for
it, meaning that the total supply of all goods and
services must equal the total demand for all goods and
services, because every seller is a buyer at the same
time (Johnson, 1976, 108) (Sayed Hassan, 1985, 194),
Monetary equilibrium is achieved according to Say's
principle when the total demand for money is equal to
the amount of money available, and achieving this
monetary equilibrium requires the presence of forces
or factors that achieve balance between the total
supply and the total demand for goods and services in
the national economy (Siegel, 1987, 329). Say's
principle represents the basic idea that links monetary
equilibrium or imbalance with equilibrium or
imbalance in the markets for goods and services; thus,
it helps to clarify the path taken by flowsMoney in the
economy to cause changes in money prices and the
level of production and employment. According to
Say's law, the net value of exchange transactions for all
market participants must equal zero, and accordingly,
the sum of the market values of all surplus demand for
non-monetary goods and money must equal zero,
when the total demand (D) for the good (or money)
equals the total supply (S), and equilibrium occurs only
when the planned and actual operations of buyers and
sellers are equal (Siegel, 1987, 337-338). This means
that monetary imbalance is a source of economic
fluctuations in the economy as a whole, as the
economy tends to contract when there is a surplus
supply, and tends to boom when there is a surplus
demand for goods and services. If it represents the
demand for money i, which is the actual money supply,
then:
When the demand is greater than the cash balances, it
is positive, and when the demand is less than the
existing cash balances, it is negative, while it is zero at
equilibrium (Siegel, 1987, 342 343).
One of the basic assumptions of monetary equilibrium
according to Say's law is that monetary equilibrium is
accompanied by a special equilibrium in the market for
non-monetary goods and services, which can be proven
through the following equations)
Where equation shows supply and demand in both the
money market and the goods market. From the goods
market:
By substituting equation, the last equation shows Say's
principle, which indicates that the existence of a
surplus in demand for non-monetary goods and
services requires the existence of a surplus in the total
supply of money. Conversely, an excess of the
aggregate supply of non-monetary goods and services
must be accompanied by
Excess aggregate demand for money (Siegel, 1987,
345-346) (Johnson, 1976, 110-111).
More clearly, the overall changes in the commodity
market from excess demand to excess supply of goods
and services are due to monetary factors, taking the
form of changes in the money supply resulting from
monetary policies adopted by the monetary
administration, or resulting from changes in the
demand for money determined initially by the behavior
of individuals. This equation also shows that the
equality of planned and actual holdings of money leads
to the total net value of planned exchange being zero,
and as a result this means that achieving general
equilibrium is where money is neutral. (Siegel, 1987,
346) (mises,www.mises.org/mmmp, 2).
According to the Valras analysis, it was stated that as
long as we have the data on the total goods demanded
at a certain price as well as the total value of the output
of these goods, then it is easy to determine the total
demand during a certain period of time (t), where:
The price of the good at which the quantity demanded
is determined:
The level of demand for these goods:
In the same way, the total value of these goods can be
calculated by displaying these goods, which can be
expressed as follows:
Where S is the quantity offered, and from here we find
that the Valras-Say law assumes complete equality
between supply and demand, and that the total of what
is purchased of goods equals the total of what is sold of
these goods, and this situation is represented by
complete identity, as this identity means, more clearly,
that the total aggregate demand at a certain price for
these goods (p) and at a specific interest rate (r) and
during a certain period of time (t) equals the total
aggregate supply at a certain level of these goods and
at a specific interest rate and during a specific period of
time, and therefore this identity was expressed in three
conditions arranged on top of each other as follows ),
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and thus the value spent on the purchase must match
and equal the value Proceeds from the sale, i.e.:Here
we note that both Valras and Say were interested in the
supply side as one of the determinants of price (Sayed
Hassan, 1985, 194 196) (Johnson, 1976, 108 109). Both
Valras and Say worked on applying their new approach
to money, as money was considered a unique
commodity that is demanded for itself and offered for
its own sake. If this logic is applied to money, and we
assume that the quantity of money is (M), then it is
possible to give the material character to the result of
the demand for money, let it be (Dr), by using the price
of money, let it be (pt), and according to the Valrasian
analysis approach, the demand for money will include
both (Dr) and (pt), and since the quantity of money is
represented to us by (M), and point (O) is the highest
standard number for the quantity of money (Sayed
Hassan, 1985, 195 196). That is, the demand function
for money can be expressed as follows:
And the money supply function takes the following
form
And if we use money as a common denominator, then
the price of money is equal to unity. That is:)
Here we find that Valras applied to money the same
concepts applied to goods and services, and by using
the idea of equivalence assumed by Say's law on the
product and the quantities demanded of goods and
services, it can also be achieved on money (Mr. Hassan,
1985, 196 197) and here it is:
Since the last identity means that the highest level of
total aggregate demand for money MO is at a certain
level of prices and at a specific interest rate during a
certain period of time equal to the highest rate of total
aggregate supply of money MH.
In the case of two types of demand BO and MO
(demand for money and demand for goods and
services) and two types of supply (BH and MH) (money
supply and goods and services supply), and using the
idea of equilibrium assumed by Say's law on the
product and the quantities demanded of goods and
services and applying it to the complex sum of goods
and money, equilibrium can also be achieved:
Economic theorists have criticized the classical theory.
Economists Hume and Mill are among the theorists
who tried to build a hypothetical theory, where
changes in the money supply would affect all
individuals, so that the prices of all goods would rise
and fall at the same time and at the same rate.
However, Hume and Mill's attempts provided a
negative proof, as the price changes of different goods
are not affected at the same rate and at the same time.
Accordingly, Hume and Mill provided proof that the
quantity theory of money, which includes that all prices
rise and fall in the same proportion to the increase or
decrease in the quantity of money, is not correct.
CONCLUSIONS
1-The conclusion of Wicksell's analysis focuses on the
relative price mechanism of the tripartite relationship
between money - interest rate - investment, and
accordingly, changes in the interest rate are the basis
for other changes, so that the equilibrium between the
two interest rates (monetary and natural) leads to
business stability, which in turn is consistent with the
idea of monetary equilibrium, i.e. money is neutral,
meaning that money is neutral and balanced only at the
point where both the natural interest rate and the
monetary interest rate are equal..
2-The difference between the two rates leads to
disequilibrium; Wicksell identified in his theory three
basic conditions for achieving equilibrium; the first: the
natural interest rate is equal to the market interest
rate, the second: the expected savings are equal to
investments.
, and the third: the price level is stable. Hence, the three
conditions became known as monetary equilibrium in
the modern analysis of monetary theory.
3-The volume of production is determined according to
the classical hypothesis by real factors, represented by
the amount of real means of production available in the
economy, whether natural or human, and the volume
of production is always at the level of comprehensive
use, and any level below that does not exist. They based
their hypothesis on Say's law, where the supply of
goods and services creates demand for them, meaning
that the volume of goods and services is constant at the
level of comprehensive use and only in the long run.
4-The only function of money is to facilitate the
exchange process between real goods and services.
Thus, money is neutral and has no effect on the level of
use and production. Its only effect is on the general
level of prices.
5-The essence of the quantity theory is that the role of
money is limited to influencing the general price level
without affecting other economic variables, i.e.
doubling the quantity of money leads to doubling
prices only, i.e. it has a double effect on prices.
RECOMMENDATIONS
1-The researcher recommends relying on solid
theoretical foundations that clarify the importance of
following sound economic steps that would clarify the
importance of monetary neutrality, which could lead
the economy according to the prevailing interest rates
to important levels.
2-The equilibrium price of a commodity in a free market
economy is determined by the intersection of the real
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
supply and demand curves in the market, and the
elasticity of these curves affects prices to a significant
degree; while the general price level is determined by
the quantity of money and the speed of its circulation
in the real economy.
The researcher recommends that the performance of
the central bank should be in line with the size of the
market and in accordance with the overall changes in
the commodity market from excess demand and excess
supply of goods and services due to monetary factors,
taking the form of changes in the money supply
resulting from the monetary policies adopted by the
monetary administration.
4-Monetary equilibrium is achieved according to Say's
principle when the total demand for money equals the
amount of money available. Achieving this monetary
equilibrium requires the existence of forces or factors
that achieve a balance between the total supply and
the total demand for goods and services in the national
economy.
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