Abstract

Within traditional Keynesian economics money serves as a means of payment and a store of wealth. These two functions of money were used by Keynes to undermine the classical dichotomy between the real and monetary sectors of the economy. The end result was his liquidity preference theory of the demand for money which allowed changes in the monetary sector to be transmitted to the real sector through changes in the rate of interest. But Keynes also assumed, along with everyone else, that the supply of money was exogenously determined. An exogenous money supply is simply another way of saying that the central bank (through its use of open market operations, the discount rate, and reserve requirements) can adjust the overall volume of money, in response to changes in the demand for it, to that level consistent with its policy objectives.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.