Publication: Journal of Economic Education
Volume: Volume 22, No. 4
Issue: Fall 1991
Pages: pp. 317-324
Author(s): Mark Thornton, Robert B. Ekelund, Jr. and Charles D. DeLorme, Jr.
Address (Principal Author):
Title: The Money-Creation Model: An Alternative Pedagogy
Abstract: A graphical/algebraic model of the money-creation is presented which complements and supplements the traditional T-account presentation. Among the advantages of this model is the ease of presenting Federal Reserve policy, institutional changes, and historical events. The process of money and deposit creation as well as the movement towards equilibrium and moneyholding behavior of the public and banks are considered. Actual currency-deposit ratios and actual reserve-deposit ratios are contrasted with desired magnitudes in the predicted model and equilibrium levels of deposits and money stock are established. Applications of the model to Federal Reserve policy and to contemporary problems such as the S & L crisis are discussed.