The Relationship Between Budget Deficit and Money Demand in Iran

Budget deficitis the result of financial polices in economics. Using of these polices has significant and important effect on economy. The most important question about increasing of government debt or budget deficit is whether it is able to change the real variable in economy or not. We can find answer to this question by analyzing the outcome of budget deficit in short-run and long- run. In order to answer the question, relationship between budget deficit and money demand has been surveyed in this paper. In this paper, we survey the effect of budget deficit on money demand. There are three main theories: 1) Keynesian theory 2) Neoclassical theory and 3) Ricardian equivalence theory. The result based on econometrics models by using Iran economy data indicated that there is a long-run dynamics relationship between budget deficit and money demand