Money and Monetary Policy

This chapter begins by exploring the difficulties involved in defining ‘money’. It next introduces various approaches to monetary policy, including the idea of rules, such as a target for the exchange rate. There follows a discussion of the supply of money, which makes use of the money creation equation before focusing on the transmission mechanism of monetary policy. The chapter concludes by discussing credit rationing, which exists because both corporate and personal borrowers cannot always borrow as much as they would like, and shows that rational behaviour by credit lending agencies will lead to economic problems.