Running Head: Aggregate Money Demand Aggregate Money Demand Customer Inserts His/her Name Customer Inserts Grade Course Customer Inserts Tutor`s Name 11 May 2011 Outline * Introduction * Components of Aggregate Money Demand * Factors Affecting Aggregate Money Demand * Measuring Money Demand * Conclusion * References * Appendix Introduction Aggregate money demand is simply the demand for money in the economy which comes from the two basic units of economies- i.e. households and firms. The demand for money is an important aspect for economists as it helps measure the stability of an economy and is also an important factor in determining government intervention policies. More specifically, in the recent past, with the on set of the financial crisis, the world experienced some of the worst liquidity problems as the aggregate demand for money rose beyond imagination. When BNP Paribas declared that its investors could not withdraw funds from two of its hedge funds due to subprime losses and shortage in cash, people with investments in other institutions also realized that the same thing could happen to them. As a result many investors and depositors started demanding their money back, where aggregate money demand rose to alarming levels, much beyond the cash reserves that these banks had. CITATION BBC09 l 1033 (BBC, 2009) As a results one of the banks, Northwestern Rock faced the largest r...