tailieunhanh - Capitalism Court of Appeals discusses_6

Tham khảo tài liệu 'capitalism court of appeals discusses_6', khoa học xã hội, kinh tế chính trị phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | A Failure of Capitalism A rise in liquidity causes prices to fall because there is less money available for transactions and falling prices in turn make holding cash still more desirable. The resulting increase in liquidity or equivalently reduction in velocity causes prices to fall further unless something is done to increase the amount of money in circulation. Can the Federal Reserve without causing serious long-term damage to the economy effectuate an increase in the money supply large enough to prevent prices from falling dangerously The banking system currently in distress is the Federal Reserve s agent in executing monetary policy. And the liquidity preference of banks other firms and individuals cannot be gauged in advance. Economists who think that monetary policy alone can pull US out of our economic doldrums take comfort in a well-known formula for determining the relation of money to prices MV PY where M is the amount of money V its velocity p the price level and Y the economy s output. Equivalently V PY M which makes it seem that increasing M must increase economic activity that is must increase PY the market value of the economy s output in order to maintain the equality between V and PY M. But this is only because 202 The Government Responds V is a constant in the equation. If people are fearful of borrowing if they have a strong liquidity preference and banks likewise and banks are therefore reluctant to lend increasing the money supply may have little or no impact on economic activity. If V is falling at the same rate that M is rising economic activity will be unaffected by the increase in M. And it may be. As Keynes explained in The General Theory p. 317 It is the return of confidence to speak in ordinary language which is so insusceptible to control in an economy of individualistic capitalism. This is the aspect of the slump which bankers and business men have been right in emphasising and which the economists who have put their faith in a purely