Money, Banking, and Economic Activity - 1st Edition - ISBN: 9780124689503, 9781483268750

Money, Banking, and Economic Activity

1st Edition

Authors: Gail E. Makinen
eBook ISBN: 9781483268750
Imprint: Academic Press
Published Date: 1st January 1981
Page Count: 576
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Money, Banking, and Economic Activity focuses on the use of macro- and microeconomic theory in the analysis of the interrelations of money, banking, and economic activity.

The book first underscores the importance and definition of money and financial intermediaries. Discussions focus on financial intermediaries and risk reduction, ability of intermediaries to decrease their own risks, effect of inflation on credit monies, and empirical definition of money. The text then examines the supply of money and the economic role of nonmoney-creating financial intermediaries, including thrift institutions and monetary policy, federal funds and repurchase agreements, monetary analysis and the place of thrift institutions, and developments altering the functions of financial intermediaries.

The publication takes a look at the evolution of the international monetary system, money in an open economy, electronic fund transfers, and the Gibson paradox and the term structure of interest rates. Topics include level of interest rates, importance of theories of the term structure, market structure of financial institutions, theory of the supply of money, and foreign exchanges and the balance of payments.

The manuscript is a valuable source of data for researchers interested in the interrelations of money, banking, and economic activity.

Table of Contents

1 The Importance of Money

2 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


3 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


4 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?


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 Theme

5 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


6 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


7 Central Banking

The History of American Central Banking

The Tools of Central Banking

The Federal Reserve as a Fiscal Agent

Proposals for Reform


8 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


9 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


10 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


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 Model

11 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


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 1979

12 Inflation and Unemployment



The Inflation-Unemployment Trade-Off


Appendix A - A Mathematical Development of the Phillips' Curve Theory

13 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


14 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


15 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


16 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


Appendix A - The IS-LM Model in an Open Economy

17 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


Appendix A - The EuroDollar Market



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© Academic Press 1981
Academic Press
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About the Author

Gail E. Makinen

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