Abstract
Government’s macroeconomic policy is designed to control the level of economic activity in the country. Monetary policy does this by regulating the supply of money. To explain why control of the money supply will affect the economy it is useful to introduce at this stage what is known as the Quantity Theory of Money. This claims that the level of prices in the economy is directly related to the quantity of money in the economy. The significance of this theory for inflation is developed in Chapter 12, where the theory will be explained in more detail. Here we will mainly be using the equation with which the theory has become associated, Fisher’s equation:
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Further Reading
M. J. Artis and M. K. Lewis, Monetary Control in the United Kingdom (Philip Allan, 1981)
Roger Brown, A Guide to Monetary Policy (Banking Information Service)
C. A. E. Goodhart, Monetary Theory and Practice — The UK Experience (Macmillan, 1984)
David T. Llewellyn et al, The Framework of UK Monetary Policy (Heinemann, 1982)
F. E. Perry, The Elements of Banking, 4th ed. (Methuen, 1984)
Roger Bootle, ‘Origins of the Monetarist Fallacy — The Legacy of Gold’, LBR (July 1984)
Karl Brunner, ‘The Case against Monetary Activism’, LBR (Jan 1981)
Tim Congdon, ‘Is the Provision of a Sound Currency a Necessary Function cf the State?’ NWBQR (Aug 1981)
Nicholas Kaldor and James Trevithick, ‘A Keynesian Perspective on Money’, LBR (Jan 1981)
David T. Llewellyn and Colin Kearney, ‘The British Monetarist Experiment: A Preliminary Assessment’, EJEA (Spring 1984)
Brian Tew, The Implementation of Monetary Policy in Post-war Britain’, MBR (Spring 1981)
Margaret Wilkinson, ‘UK Monetary Policy 1979–81: Policy, Events and Mechanisms of Control’, EJEA (Spring 1982)
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© 1985 John Evans-Pritchard
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Evans-Pritchard, J. (1985). Monetary policy. In: Macroeconomics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-17926-8_9
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DOI: https://doi.org/10.1007/978-1-349-17926-8_9
Publisher Name: Palgrave Macmillan, London
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