A central quandary of modern economics in general, and monetary theory in particular, is this: today, in advanced industrial economies, most money—certainly money at the margin—is interest bearing, and the difference between the interest paid on money in, say, a cash management account15 and a T-bill is determined not by monetary policy, but by transactions costs. In effect, with modern technology, individuals can use T-bills for transactions. There is no opportunity cost, at the margin, in holding “money.” (To be sure, there is an opportunity cost in holding currency, but there are few economists......
A Critique of the Transaction-based Theory of the Demand For Money
There are several reasons why one might be suspicious of traditional explanations. Keynes was, perhaps, not as clear concerning the definition of money as he could have been. The absence of clarity may have been deliberate, enabling him to slip from one use to another, without the reader being aware. We focus our attention on demand deposits, because these are the part of money most directly under the control of monetary authorities, and then slightly more broadly, on M1, which includes currency.
Keynes spoke of three motives for holding money: the precautionary, the speculative, and the transactions......
The Critical Assumption: Perfect Capital Markets
One of the most important developments in economic theory, but of the past fifteen years has been the exploration of the consequences of imperfect and costly information for the functioning of the capital market.
It has been shown that models that assumed imperfect capital markets may have been much closer to the mark than those that, on the contrary, assumed perfect capital markets.
These studies have shown that capital markets that are competitive—in the sense that word is commonly used—may be characterized by credit and equity rationing. The models based on imperfect and costly information......
The Wavering Case For The Irrelevance Of Money
Research over the past three decades has managed to both strengthen—and weaken—the argument that money does not matter. Extending the general equilibrium approach (Stiglitz (1969, 1974a)) to show the irrelevance of corporate financial policy, public financial policy was shown to have no effect.
Establishing a form of Say’s law for government debt, Stiglitz (1988a) showed that if the government reduced taxes and increased its debt, the demand for government bonds increased by an amount exactly equal to the increase in supply.
Furthermore, a change in the term structure of government debt......
Reflections On The Current State Of Monetary Economics
To theorists, monetary economics has long presented a challenge: finding the assumptions under which it does or does not matter. The challenge is all the greater
because while it is easy to construct models in which money matters, it is hard to believe that the quantitative effects in at least many of these are significant enough to account for observed behavior.
For instance, macro-economists have often relied on the real balance effect, the fact that as prices fall, the real value of money increases, making individuals feel better off. However, for moderate rates of decline in prices, the......
White Collars Turn Blue - Paul Krugman
A note to readers: This was written for a special centennial issue of the NYT magazine. The instructions were to write it as if it were in an issue 100 years in the future, looking back at the past century.
When looking backward, one must always be prepared to make allowances: it is unfair to blame late 20th-century observers for their failure to foresee everything about the century to come. Long-term social forecasting is an inexact science even now, and in 1996 the founders of modern nonlinear socioeconomics were still obscure graduate students. Still, even then many people understood that......
Japanese Management
A stererotyped image of Japanese management, so populer and widely shared among foreigners, also exists among the Japanese themselves.
According to this view, Japanese management has unique features: lifetime commitment of workers to the firm, the length-of-service reward system, and enterprise unionism as a partner in the fiim. These features, which one could legitimalely describe as integral elements of Industrial relations, Imply that workers are immobile and committed to their employer’s implicit guarantee of employment throughout their working careers, that wages are determined not by......
International Trade Barriers
Every country in the world has trade barriers which are designed to protect its economy against international market forces. These restrictions tend to reduce world trade. They also decrease the consumers’ freedom of choice among different products. In addition, they encourage domestic production in areas which are economically inefficient. Such restriction may be divided into tariff barriers and non-tariff barriers.
Tariff barriers are by far the oldest type of trade restriction, having been used for five hundred years or more. A tariff may be defined as a tax which is put on a commodity when......
The Problem of Urbanization in Developing Countries
What is the typical condition of the poor in most of the so called developing countries? Their work opportunities are so restricted that they can not work their way out of misery. They are underemployed or totally unemployed, and when they do find occasional work their productivity is 5 exceedingly low.
Unemployment in the rural areas is often thought to be due entirely to population growth and no doubt this Is an important contributory factor. But those who hold this view will have to explain why additional people cannot do additional work. The fact is that these people lack the skill required......
Business Computer Systems
Computers continue to revolutionize business. Managers, for example, use information from expert systems to help in the decision-making process and market analysts use complex computer databases to analyze and forecast consumer behavior. In fact, computer technology is the most important aspect of the late twentieth-century information revolution. This technology has led to the development of the new high-tech industries, such as microelectronics and robotics.
Speed, a high degree of accuracy, and the ability to manipulate and store large amounts of data led to the early specialization of......
The Rality Of Decison Making
Decision making is a complex business subject which combines the most complicated elements of the operational and theoretical aspects of management. The ability to implement the decision-making process is often determined by environmental factors rather than the steps in some “ideal” model.
Decisions are frequently influenced more by the environment and structure of the organization than by the method itself. The process of decision making will, therefore, be examined in light of environmental factors. One of these factors—social and cultural background—affects the interaction among people......
Step In The Decisin Process
One of the most important tasks a manager performs is decision making. This may be defined as the process of choosing a course of action (when alternatives are available) to solve a particular problem. The steps listed below provide a simplified framework of the ideal decision-making process:
The first step, defining the problem, is perhaps the most difficult step. It involves careful analysis of a situation in order to state the problem and determine its cause. For example, a factory may be experiencing low production (the problem) because the supervisor has failed to schedule the work shifts......
Management And Human Resources Development
Managers perform various functions, but one of the most important and least understood aspects of their job is proper utilization of people. Research reveals that worker performance is closely related to motivation; thus keeping employees motivated is an essential component of good management. In a business context, motivation refers to the stimulus that directs the behavior of workers toward the company goals. In order to motivate workers to achieve company goals, managers must be aware of their needs.
Many managers believe workers will be motivated to achieve organizational goals by satisfying......
Management Functions
Management plays a vital role in any business or organized activity. Management is composed of a team of managers who have charge of the organization at all levels. Their duties include making sure company objectives are met and seeing that the business operates efficiently. Regardless of the specific job, most managers perform four basic functions:
Planning
Organizing
Directing
Controlling
Planning involves determining overall company objectives and deciding how these goals can best be achieved. Managers evaluate alternative plans before choosi1g a specific course of action and then......
Acquisition Of Capital
A corporation needs capital in order to start up, operate, and expand its business. The process of acquiring this capital Is known as financing. A corporation uses two basic types of financing: equity financing and debt financing. Equity financing refers to funds that are invested by owners of the corporation.
Debt financing, on the other hand, refers to funds that are borrowed from sources outside the corporation. Equity financing (obtaining owner funds) can be exemplified by the sale of corporate stock. In this type of transaction, the corporatition sells units of ownership, known as shares......
Why Finance ?
One of the primary considerations when going into business is money. Without sufficient funds a company cannot begin operations. The money needed to start and continue operating a business is known as capital. A new business needs capital not only for ongoing expenses but also for purchasing necessary assets. These assets-inventories, equipment, buildings, and property—represent an investment of capital in the new business.
How this new company obtains and uses money will, in large measure, determine its success. The process of managing this acquired capital is known as financial management.......
