Money and inflation. Please note that although Lipsey and Chrystal is fine, Parkin et al is particularly good on this topic. Parkin and King also make less use of the IS-LM apparatus, which we will look at after this topic. The difference in emphasis also reflects the beliefs of the two main authors, Lipsey and Parkin. Parkin is rather more monetarist in sympathy than Lipsey.
Most money is created by the banking system.
The demand for money depends on nominal interest rates and income. If the real money supply contracts interest rates rise. If the real demand for money rises interest rates rise. All things being equal, and in the long run, the price level is proportional to the money supply. Money is a medium of exchange and usually serves as a store of value for individual agents.