Money, Banking, and Economic Activity

1 The Importance of Money2 What is Money? The Traditional Definition The Empirical Definition of Money A Comparison of the Traditional and Empirical Definitions The Liquidity Definition Monetary Systems Credit Money and Monetary Management Credit Monies and Inflation The Effect of Inflation on Credit Monies Social Benefits of Paper Money Summary3 Financial Intermediaries The Lending Process Financial Intermediaries and Risk Reduction The Ability of Intermediaries to Decrease Their Own Risks Specialization and Cost Reduction A Mixed Blessing? Disintermediation and Regulation Q Historical Rationalizations for Regulation Q Recent Rationalizations for Regulation Q The Effectiveness of Regulation Q The Cost of Regulation Q The Structure and Growth of Financial Intermediaries Financial Intermediaries and the Volume of Credit Financial Intermediaries and Lending Specialization The Flow of Loanable Funds Through Private Intermediaries Summary4 The Supply of Money The Balance Sheet Money Creation Some Final Thoughts on the Supply of Money What Determines the Supply of Money? Who Controls the Money Supply? Can the Central Bank Control the Money Supply? Summary Appendix A - The Origin of Commercial Banking Appendix B - Bank Credit Rather than Money Appendix C - Bank Reserve Requirements and Their Enforcement: A Comparison Across States Appendix D - Variations on a Theme5 The Economic Role of Nonmoney Creating Financial Intermediaries Recent Developments Altering the Functions of Financial Intermediaries The Historical Concern With Thrift Institutions Monetary Analysis and the Place of the Thrifts The Distinguishing Characteristics of Commercial Banks Thrift Institutions and Monetary Policy Thrift Institutions and the Money Multiplier Federal Funds and Repurchase Agreements Summary6 The Theory and Practice of Commercial Banking The Bank Balance Sheet The Asset and Liability Structure of a Typical Bank The Relationship of Market Interest Rates and Bond Prices The Theories of Commercial Banking Summary7 Central Banking The History of American Central Banking The Tools of Central Banking The Federal Reserve as a Fiscal Agent Proposals for Reform Summary8 The Derivation of the Monetary Base Sources of the Base Movements in the Source Accounts Over Time The Components of the Monetary Base and Control of the Money Supply Summary9 The Federal Treasury, the National Dabt, and the Money Supply The Federal Government's Fiscal Activities When is Fiscal Policy Fiscal Policy? The Maturity Structure of the Public Debt The Treasury, the g Ratio, and the Money Supply Summary10 Money and Economic Activity The Commodity Market The Money Market Joint Equilibrium in the Commodity and Money Markets The Labor (and Output) Market The Complete Keynesian Model An Increase in the Supply of Money Factors Governing the Success of Monetary Policy The Countercyclical Use of Monetary Policy Summary Appendix A - The Derivation of the Keynesian Speculative Demand for Money Appendix B - A Critique of the Monetary Theory of Keynes Appendix C - Refinements to the Monetary Theory of Keynes Appendix D - Other Problems in a Macroeconomic Context Appendix E - The IS-LM Framework as an Alternative Macroeconomic Model11 The Implementation of Monetary Policy Targets and Indicators of Monetary Policy Desirable Characteristics of a Target and Indicator Economic Theory and the Choice of Targets and Indicators The Choice of Targets and Indicators The Monetary Transmission Mechanism An Evaluation of Each Target-Indicator Set Current Federal Reserve Practices Summary Appendix A - Interest Rates as an Indicator of Federal Reserve Policy and the Procyclical Growth of the Money Supply Appendix B - The Implementation of Monetary Policy in an IS-LM Context Appendix C - Deliberations of the Federal Open Market Committee in 197912 Inflation and Unemployment Inflation Unemployment The Inflation-Unemployment Trade-Off Summary Appendix A - A Mathematical Development of the Phillips' Curve Theory13 The Gibson Paradox and the Term Structure of Interest Rates The Ricardo-Tooke Conundrum Gibson's Paradox The Level of Interest Rates The Term Structure of Interest Rates The Importance of Theories of the Term Structure Conclusion14 The Great Debate Over the Importance of Money The Neutrality of Money The Proportionality of the Money Stock and the General Level of Prices A Monetary Theory of the Price Level The Causality of Money The Exogeneity of Money Summary15 Electronic Funds Transfers Description of Some EFT Systems A Definition of Money The Market Structure of Financial Institutions The Portfolio Selections of Depository Institutions The Theory of the Supply of Money The Theory of the Demand for Money Regulation Q The Effectiveness of the Instruments of Monetary Policy The Selection of the Appropriate Set of Targets and Indicators The Transmission Mechanism Summary16 Money in an Open Economy The Role of Money in an Open Economy The Case for Free Trade The Balance of International Payments The Balance of Payments of the United States The Foreign Exchange Market Foreign Exchanges and the Balance of Payments Fixed vs. Flexible Exchange Rates Monetary and Fiscal Policy in an Open Economy Conclusion Appendix A - The IS-LM Model in an Open Economy17 The Evolution of the International Monetary System The Gold Standard The Gold Exchange Standard Bretton Woods - 1944 The Cause of the United States Balance-of-Payments Problem Conclusion Appendix A - The EuroDollar MarketIndex