Final answer:
Increases in financial technology typically lead to a reduced demand for physical cash and an increase in the safety and convenience of transactions.
Step-by-step explanation:
When there are increases in financial technology, like ATM machines or online banking, the demand for money may decrease in terms of physical cash, as people find electronic transactions more convenient for making payments and managing finances.
This convenience could reduce the need to hold large amounts of cash since access to funds becomes easier and more immediate through these technological advances.
Additionally, the safety of transactions may increase due to the electronic tracking and security features that come with online banking and ATMs, further decreasing the necessity to keep cash on hand.
However, if banks are under financial stress or if banking technology fails, this reliance on technological systems can lead to significant disruptions in economic activities, as was seen during the 2008-2009 Great Recession.
In a modern, developed economy, financial capital often moves invisibly through electronic transfers, and these flows of funds can be analyzed using the same tools of demand and supply as markets for goods or labor.
The process of banks making loans is tied to the creation of money, indicating that advancements in financial technology play a key role in how easily money circulates within the economy.