The money-creation model: graphic illustration.
Journal of Economic Education, The, January, 2004 by Chang, Juin-jen; Kao, Ming-ruey; Lai, Ching-chong
Abstract: The authors propose a pedagogical apparatus embodying a solid micro-foundation with emphasis on the public's choice between currency and demand deposits being an optimal decision. On the basis of the pedagogical exposition, the authors explain how money supply is related to the combined behaviors of the central bank, commercial banks, and the public.
Key words: money creation, money multiplier, pedagogy JEL codes: A22, E51
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Authors of macroeconomics and money and banking textbooks usually adopt the T-account pedagogy to illustrate the money-creation process and the money multiplier. Thornton, Ekelund, and Delorme (1991) and Gamble (1991) have developed a graphic technique for teaching the money-creation process. (1)...
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