Document Type

Article

Journal/Book Title/Conference

Economic Research Institute Study paper

Publisher

Utah State University

Publication Date

8-1-1987

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

26

Abstract

Theoretical discussions involving the relationship between the money supply and an economy's output has dominated the field of monetary economics for many years. Theoretically, the resolution of two separate issues is crucial - (1) the question of causality in the money-income relationship and (2) the effects of monetary changes on the two components of nominal output; i. e., the price level and real output. Two major opposing views can readily be identified: the monetarist view and the keynesian view. The monetarists' view is based on the postulates of the Quantity Theory of Money. In their view, the money supply is exogenously determined. Furthermore, according to the monetarists, there exists a direct causal flow from money to nominal output. 3 Consequently, changes in the money supply dominate movements in nominal output. Some monetarists allow for a feedback from nominal output to the money supply, but even then, monetary changes are considered the major factors determining nominal Qutput.

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