DEMAND FOR MONEYRefers to holding on with your money.is how much of your wealth you wish to hold as money at any moment in time. It is thus a stock demand. Your wealth is a stock, and you must decide how to allocate that stock of wealth between different kinds of assets -- for example a house, income-earning securities, a checking account, and cash. TYPES OF DEMANDTransactions motive.Money is a medium of exchange, and people hold money to buy stuff. So as income rises, people have more transactions and people will hold more money

Precautionary motive.People hold money for emergencies (cash for a tow truck, savings for unexpected job loss). Since this also depends on the amount of transactions people expect to make, money demand is again expected to rise with income.

Speculative motive.Money is also a way for people to store wealth. Keynes assumed that people stored wealth with either money or bonds. When interest rates are high, rate would then be expected to fall and bond prices would be expected to rise. So bonds are more attractive than money when interest rates are high. When interest rates are low, they then would be expected to rise in the future and thus bond prices would be expected to fall. So money is more attractive than bonds when interest rates are low.So under the speculative motive, money demand is negatively related to the interest rate.

MONETARY POLICY INSTRUMENTMeasures or actions by the Central Bank to regulate the supply of money in the economy constitute what is called the monetary policy. Monetary policy actions of the BSP are aimed at influencing the timing, cost and availability of money and credit , as well as other financial factors, for the purpose of influencing the price level. this is in line with the primary mandate of the BSP under RA 7653 otherwise known as the New Central Bank Act to maintain price stability conducive to a balanced and sustainable growth of the economy.

In the Philippines, monetary policy instruments are classified into1. Open Market OperationsIt involves the buying or selling of government securities from banks and financial institutions of the BSP in order to expand or contract the supply of money. an open market purchase of securities by the BSP results in an increase in reserves and an increase in the supply of money. Moreover, an open market sale of securities by the BSP results in a decrease in reserves and a decrease in the supply of money.2. RediscountingThis refers to transactions whereby the BSP extends credit to a bank collateralized by its loan papers with customers. This instrument plays a dual role; as a tool to allocate credit to preferred sectors of the economy and as an instrument to influence the supply of money and credit. Rediscounting rate is the interest rate charged by the BSP to the banks that borrow from them. 3. Reserve RequirementsThis is the minimum amount of reserves that banks must hold against deposits.e.g. let's say MR. Rafael deposits P100, 000.00 with Land Bank of the Philippines. The BSP requires LBP to keep 10% of deposits.4. Direct ControlsThese consist of quantitative and qualitative limits on the ability of banks to undertake certain activities. The most common types of direct controls include limitations on aggregate bank lending, selective limitations on certain types of back lending and interest rate regulations. these controls are prescribed to promote specific sectors and focus more on developmental financing . Under the new charter, the Spas abandoned direct controls with its pursuit of more market oriented and deregulated policies.5. Moral SuasionThe BSP persuades banks to make their lending policies responsive to the needs of the economy. Banks must tighten their credit programs in times of inflation and loosen them in times of recession.

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