MONEY In Davidsons book, according to Hicks (1969) pg 1, money is a difficult concept to define, partly because it fulfills not only

one but three functions, each of them providing a criterion of moneyness, those of unit of account, medium of exchange and store of value. Irvin Fisher thought general acceptability in exchange to be the most important aspect of money. Because it is difficult to define, other people have different approaches to definition of money, the transactions approach and the liquidity approach. in the transactions approach, M1 emphasizes money as a medium of exchange, this approach stresses that only an asset that serves as a medium of exchange be included in the empirical measurement of money Modisapoo (2002). Keynes also emphasizes the importance of money as a medium of exchange and liquidity. This indicates that he thought of currency when he talked about money. Even though there are disagreements to how to define it, most economists, emphasizes the transaction aspect more than any other. MONEY SUPPLY Money supply is simply defined as the total supply of money running in the economy of a given country at any given time. The money supply is defined to consist of currency and cash held by non bank, public and demand deposits Modisapoo (2002). There are three definitions to the supply of money; the first is M1 definition, which is also referred as the narrow definition, it attempts to classify money as an asset that serves regularly as a medium of exchange Wiley and Sons (1985), and concept, includes currency and checkable deposits. M2 definition includes, near monies such as money market deposits accounts savings, money market mutual funds. M3 definition includes large time deposits of $100 000 or more, usually owned by businesses as certificates of deposit. McConnell-Brue (1996) THEORIES REGARDING MONEY SUPPLY

There have been arguments by economists as to whether to treat money supply as an endogenous variable or exogenous variable. Several economists have come up with various ideas and views on why they think money supply is exogenous or endogenous. Of these are Keynesians (post and pre), monetarists and neo classical. According to journal of post Keynesian economics 1,Pollin (1991) One of the major advances by post Keynesian economists in recent years has been the development of the theory of money supply endogeinity, in opposing the simplistic neo classical notion that the money supply strictly grows through central bank initiatives, that is through processes exogenous to financial market pressures, Post Keynesians have developed the view that pressures emerging endogenously within financial markets are the basic determinant both for fluctuations in the money supply growth and more broadly of credit availability. it is apparent that post economists considered that the supply of money must be regarded as an endogenous variable. According to Riefler- Burgess Hypothesis (1927 & 1930) states that the money function depended upon the base of high powered money, which could be influenced by either open market operations or international gold flows, thus their view was that money supply should be treated as an endogenous variable. In Irving Fishers theory of money apart from the increase in the monetary base that initiates the cycle, it is the change in the money multiplier which alters the money supply. Modisapoo (2002).Fishers view adds to the other economists ideas that the money supply is an endogenous variable. THE MULTIPLIER APPROACH There are approaches of explaining the determinants of money supply, the multiplier approach links monetary base to the money supply. The equation that explains this is given as Ms= m* MB Where Ms is money supply m is the multiplier MB is the monetary base

The monetary base is also referred to as high powered money, and is said to consist of sum of actual bank reserves plus paper currency plus coins in the hands of public. While factors determining the multiplier; are reserve ratio (RR), currency ratio (CR) and excess reserve ratio (ER).