By President John Eatwell, Dr Peter Newman, Fellow and Director of Studies in Economics Murray Milgate
This is an excerpt from the 4-volume dictionary of economics, a reference ebook which goals to outline the topic of economics this present day. 1300 topic entries within the whole paintings conceal the huge subject matters of monetary concept. This extract concentrates on money.
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Quantity theorists can describe the transmission mechanism as operating 'through' the balance sheet and 'through' changes in interest rates. The attempt by holders of money to restore or attain a desired balance sheet after an unexpected increase in the quantity of money tends initially to raise the prices of assets and reduce interest rates, which encourages spending to produce new assets and also spending on current services rather than on purchasing existing assets. This is how an initial effect on balance sheets gets translated into an effect on income and spending.
The quantity theorists insist that a far wider range of assets and interest rates must be taken into account - such assets as durable and semi-durable consumer goods, structures, and other real property. As a result, the quantity theorists regard the market rates stressed by the Keynesians as only a small part of the total spectrum of rates that are relevant. This difference in the assumed transmission mechanism is largely a by-product of the different assumptions about price. The rejection of absolute liquidity preference forced Keynes's followers to let the interest rate be flexible.
92-5; Commission, 1982, vol. 1, p. 17). Other proposals include freezing the stock of base money and eliminating discretionary monetary policy, and denationalizing money entirely, leaving it to the private market and a free banking system (Friedman, 1984; Friedman and Schwartz, 1986; Hayek, 1976; White, 1984a). Finally, a still more radical series of proposals is that the unit of account be separated from the medium of exchange function, in the belief that financial innovation will establish an efficient payment system dispensing entirely with the use of cash.