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The RBI as the manager to public debt has tried hard to widen the market for government debt as much as it can. There is near- unanimity among monetary economists around the theory of money supply that says, that the single most important and dominant factor that determines money supply is H. For short, we shall call it the H theory of money supply. The above, ultimately, is the key equation of the H theory of money supply. Thus, in the first instance, the equation serves well one of the useful functions of a theory—that of providing a filing or classificatory device for various factors affecting a dependent variable, as, for example, is done by the well-known theory of demand and supply of price determination under perfect competition. The quantity theory of money is a theory that variations in price relate to variations in the money supply. The money supply roughly includes … The money supply is all the currency and other liquid instruments in a country's economy on the date measured. Every scheduled bank is required to maintain all its RR as balances with the RBI.
First consider figure 15.1. Some economists therefore call it ‘The H Theory of Money Supply’.
In such a world, during depressions the demand for bank loans and advances could decline sharply and banks could stay loaded with undesired excess reserves. Consequently it can vary over time, not only secularly but also from one season to the other. John Maynard Keynes was a British economist who developed this theory in the 1930s as part of his research trying to understand, first and foremost, the causes of the Great Depression.
In other words, the quantity theory of money states that a given percentage change in the money supply results in an equivalent level of inflationor deflation. Investments are made in marketable securities, whether government or private. All reserves in excess of RR are called ER Banks are free to hold them as ‘cash on hand’ (also called ‘vault cash’) with themselves or as balances with the RBI. In the former figure the amount of C is not shown. According to the quantity theory of money, if the amount of money in an economy doubles,
It fell continuously over the next three years from 2.58 in 1973-74 to 1.97 in 1976-77. Each country’s central bank may use its own definitions of what constitutes money for its purposes. As a first approximation and provisionally, it is assumed that the supply of H (Hwhere the bar above H signifies that it is given exogenously to the public and banks.
According to the quantity theory of money, the general price level of goods and services is proportional to the money supply in an economy.
However, the long-term effects of monetary policy are not as predictable, so many monetarists believe that the money supply should be kept within an acceptable bandwidth so that levels of inflation can be controlled. The stability analysis offers an opportunity for studying the disequilibrium behaviour of the system. These drains may be partly expected and partly unexpected, giving rise to what may be called banks’ transactions demand and precautionary demand for cash reserves. In other words, it is the public who decides how much TD to hold in relation to DD. The participants in this market are also the monetary authority, the public, RThe supply of R to banks is determined jointly by the monetary authority and the public. This is a useful distinction, analytically as well as for monetary planning. For various reasons, most of the time the market for bank Moans suffers from excess demand rather than excess supply.
To that end it has tried to keep orderly conditions in the market for government securities, avoid fluctuations in the prices of such securities, and even support it in time of need. This will be enough to bring out the main contours of the theory and its basic analytical thrust. This is because when money growth surpasses the growth of economic output, there is too much money backing too little production of goods and services. Calling it the H theory focuses attention on the key variable in the whole drama of money-supply changes. But for simple exposition of the H theory, we shall assume it to be a constant. Monetary economics is a branch of economics that studies different theories of money. They are the three behavioural ratios c. t, and r. From this discussion we shall see that whereas changes in H are largely policy-controlled, changes in m are largely endogenous, i.e. Instead of governments continually adjusting economic policies through government spending and taxation levels, monetarists recommend letting non-inflationary policies–like a gradual reduction of the money supply–lead an economy to
What about the bank’s demand for reserves (RUnder the law, the RBI is empowered to stipulate the statutory reserve ratio, which may be varied between 3 per cent and 15 per cent of the total demand and time liabilities of a bank.
While this theory was originally formulated by Polish mathematician Nicolaus Copernicus in 1517, it was popularized later by economists Milton Friedman and Anna Schwartz after the publication of their book, "A Monetary History of the United States, 1867-1960," in 1963. Then, the investment market has grown significantly. In Figure 15.1 it can be easily inferred, because we know the equilibrium values of CThe crux of the above demonstration is the role the secondary expansion of money supply plays via the production of DD.
The RBI as the manager to public debt has tried hard to widen the market for government debt as much as it can. There is near- unanimity among monetary economists around the theory of money supply that says, that the single most important and dominant factor that determines money supply is H. For short, we shall call it the H theory of money supply. The above, ultimately, is the key equation of the H theory of money supply. Thus, in the first instance, the equation serves well one of the useful functions of a theory—that of providing a filing or classificatory device for various factors affecting a dependent variable, as, for example, is done by the well-known theory of demand and supply of price determination under perfect competition. The quantity theory of money is a theory that variations in price relate to variations in the money supply. The money supply roughly includes … The money supply is all the currency and other liquid instruments in a country's economy on the date measured. Every scheduled bank is required to maintain all its RR as balances with the RBI.
First consider figure 15.1. Some economists therefore call it ‘The H Theory of Money Supply’.
In such a world, during depressions the demand for bank loans and advances could decline sharply and banks could stay loaded with undesired excess reserves. Consequently it can vary over time, not only secularly but also from one season to the other. John Maynard Keynes was a British economist who developed this theory in the 1930s as part of his research trying to understand, first and foremost, the causes of the Great Depression.
In other words, the quantity theory of money states that a given percentage change in the money supply results in an equivalent level of inflationor deflation. Investments are made in marketable securities, whether government or private. All reserves in excess of RR are called ER Banks are free to hold them as ‘cash on hand’ (also called ‘vault cash’) with themselves or as balances with the RBI. In the former figure the amount of C is not shown. According to the quantity theory of money, if the amount of money in an economy doubles,
It fell continuously over the next three years from 2.58 in 1973-74 to 1.97 in 1976-77. Each country’s central bank may use its own definitions of what constitutes money for its purposes. As a first approximation and provisionally, it is assumed that the supply of H (Hwhere the bar above H signifies that it is given exogenously to the public and banks.
According to the quantity theory of money, the general price level of goods and services is proportional to the money supply in an economy.
However, the long-term effects of monetary policy are not as predictable, so many monetarists believe that the money supply should be kept within an acceptable bandwidth so that levels of inflation can be controlled. The stability analysis offers an opportunity for studying the disequilibrium behaviour of the system. These drains may be partly expected and partly unexpected, giving rise to what may be called banks’ transactions demand and precautionary demand for cash reserves. In other words, it is the public who decides how much TD to hold in relation to DD. The participants in this market are also the monetary authority, the public, RThe supply of R to banks is determined jointly by the monetary authority and the public. This is a useful distinction, analytically as well as for monetary planning. For various reasons, most of the time the market for bank Moans suffers from excess demand rather than excess supply.
To that end it has tried to keep orderly conditions in the market for government securities, avoid fluctuations in the prices of such securities, and even support it in time of need. This will be enough to bring out the main contours of the theory and its basic analytical thrust. This is because when money growth surpasses the growth of economic output, there is too much money backing too little production of goods and services. Calling it the H theory focuses attention on the key variable in the whole drama of money-supply changes. But for simple exposition of the H theory, we shall assume it to be a constant. Monetary economics is a branch of economics that studies different theories of money. They are the three behavioural ratios c. t, and r. From this discussion we shall see that whereas changes in H are largely policy-controlled, changes in m are largely endogenous, i.e. Instead of governments continually adjusting economic policies through government spending and taxation levels, monetarists recommend letting non-inflationary policies–like a gradual reduction of the money supply–lead an economy to
What about the bank’s demand for reserves (RUnder the law, the RBI is empowered to stipulate the statutory reserve ratio, which may be varied between 3 per cent and 15 per cent of the total demand and time liabilities of a bank.
While this theory was originally formulated by Polish mathematician Nicolaus Copernicus in 1517, it was popularized later by economists Milton Friedman and Anna Schwartz after the publication of their book, "A Monetary History of the United States, 1867-1960," in 1963. Then, the investment market has grown significantly. In Figure 15.1 it can be easily inferred, because we know the equilibrium values of CThe crux of the above demonstration is the role the secondary expansion of money supply plays via the production of DD.