Document Type

Article

Journal/Book Title/Conference

Economic Research Institute Study paper

Publisher

Utah State University

Publication Date

3-1-1985

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

24

Abstract

Theoretical discussion involving the relationship between stock of money and nominal income has dominated the field of monetary economics for many years. Within this relationship the question of exogeneity of money is critical. Theoretically, two major views concerning this subject can be readily identified: the monetarist view (based on the postulates of the Quantity Theory of Money) and the Keynesian or income expenditure view. Proponents of the endogeneity approach claim that since the stock of money is endogeneously determined, the causal flow from money to nominal income cannot be established. Consequently, any attempt to control the stock of money is meaningless. The supporters of this view assert that fluctuations of monetary growth result primarily from the behavior of the public and commercial banks and not from the actions of the Federal Reserve authorities. Consequently, the stock of money is demand determined The origins of this view can be traced to the Real Bills Doctrine of the 18th century and the commercial loan theory. The monetarists, on the other hand, not only assert that the nominal stock of money is exogeneously determined, but that there exists a direct causal flow from money to money incomes. Changes in the stock of money dominate movements in money income. Some monetari sts allow for a feedback from income to money supply, but even then the monetary changes are considered the major factors determining the stock of money.

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