financial analyze
What determines / controls the level of stock of money in the market ?
Classical/monetary argument: Stock of money controls by the central bank by changing the base money. So money is called exogenous, because money is controls by someone else outside the market. MV=PY. The positive relationship between the sum of money and inflation. If you are the one who controls the money supply, so you are able to control the inflation. Central bank controls the inflation by controlling the money supply.
Post Keynesian: They called money is endogenous. Central bank cannot control the money supply also inflation as well. Households, firms, financial markets and banking systems are all the determines of the stock of money. Level of stock of money is determined by how much money you are willing to be in debt.
In classical theory, when people want to credit, there must have some savings available. Loanable funds, there has been available loanable funds. So banks can lend these money. Otherwise, they will say sorry there is no savings in the bank.
Post Keynesian, The role of the central bank in the theory is setting the interest rate for the liquidity, which is the price of loanable.
Cash liquidity is supplied by central bank.Central bank has to supply the liquidity otherwise there will be a liquidity problem- financial crisis.
Diagram:
The top left, the central bank sets the interest rate by considering many things/ macro economic variables, which is the price of the loan (loan side). When interest is high, the price is going up. In other words, they determine the price or loan. Once the interest is set by central bank, then financial banks add the mark-up from the interest rate. There mark-up can vary between different banks, which is determined by how powerful the market ( market powerful). Then they come up the loan interest rate. So they supply the credit at there loan of interest rate. This demand cure will shift to the right
Classical/monetary argument: Stock of money controls by the central bank by changing the base money. So money is called exogenous, because money is controls by someone else outside the market. MV=PY. The positive relationship between the sum of money and inflation. If you are the one who controls the money supply, so you are able to control the inflation. Central bank controls the inflation by controlling the money supply.
Post Keynesian: They called money is endogenous. Central bank cannot control the money supply also inflation as well. Households, firms, financial markets and banking systems are all the determines of the stock of money. Level of stock of money is determined by how much money you are willing to be in debt.
In classical theory, when people want to credit, there must have some savings available. Loanable funds, there has been available loanable funds. So banks can lend these money. Otherwise, they will say sorry there is no savings in the bank.
Post Keynesian, The role of the central bank in the theory is setting the interest rate for the liquidity, which is the price of loanable.
Cash liquidity is supplied by central bank.Central bank has to supply the liquidity otherwise there will be a liquidity problem- financial crisis.
Diagram:
The top left, the central bank sets the interest rate by considering many things/ macro economic variables, which is the price of the loan (loan side). When interest is high, the price is going up. In other words, they determine the price or loan. Once the interest is set by central bank, then financial banks add the mark-up from the interest rate. There mark-up can vary between different banks, which is determined by how powerful the market ( market powerful). Then they come up the loan interest rate. So they supply the credit at there loan of interest rate. This demand cure will shift to the right