A simple macroeconomic model with portfolio selection

The simplest macroeconomic model (IS-LM) is a model in which money is a transaction currency: the demand for money depends on the value of GDP and income. But if the demand for money is linked to nominal GDP, in the long term the increase in the supply of money should lead to a rise in goods and services prices, which cannot be seen . On the contrary , it leads to a rise in asset prices (equities, real estate). Accordingly, we prefer a portfolio choice model where money is one of the components of wealth, along with government bonds and other financial assets. We give an example of a simple model of this type, where there are three assets (money, government bonds, another asset), and where production, interest rates and asset prices are determined at equilibrium. The model is very well suited to a simple analysis of current fiscal and monetary policies.