Cambridge Cash Balance Approach

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Cambridge Cash-Balance Approach

The Cambridge or Cash-balance equation has been expounded by such economists of the Cambridge University like Marshall, Pious, Keynes and Robertson.

In this approach, the demand for and supply of money has been considered in reference to a particular point of time rather than at a particular period of time. While the earlier economists laid emphasis on the supply side of money, the formulation of cash-balance approach emphasized the demand side of money.

According to this approach the value of money depends upon the demand; but the demand for money arises not on account of transactions but on account of its being a store of value. The cash-balance approach beings with the proposition that people desire to hold a certain proportion of their income in the form of money. It is further assumed in this approach that this proportion is constant.

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