Equilibrium

Abstract

In stationary equilibrium, transactions take place in all of the submarkets of the market matrix. A stationary equilibrium means an absence of both new security issues and net increases in the money stock. A stock of outstanding bonds is assumed as a result of initial financing of business plant and equipment. Similarly, the government or central bank is assumed to supply an original amount of the means of payment. The family life cycle would govern holdings of bonds. They would be bought by those in earlier stages of the life cycle and sold by those in the later stages. In the money market desired money holdings are assumed to equal actual money holdings for all sectors collectively. This is consistent with variation in each transactor’s holdings over the payments interval, as transactors bridge the gap between receipts and expenditures by adding to or lowering their money holdings. In terms of the market matrix of Chapter I, bond transactions are LB, BP transactions (buying bonds out of labor income and selling bonds to buy products). When money intermediates, we do not show this as involving the money market. Only in the case of hoarding and dishoarding (which are defined in terms of changes in sector money holdings between time periods) or, in the case of net increases in the money stock, will activity be registered in the money market.