ABSTRACT
In the previous chapter we have considered the various ways in which the financial authorities can vary the structure of the different kinds of assets available to be held by the private sector of the economy. There are, broadly speaking, two ways in which the financial authorities can apply their powers to affect this structure of assets.1 In the first place, the financial authorities might determine the amount of the various kinds of assets which were to be made available to the private sector of the economy, i.e. determine and control the totals of the assets shown under each of the three items on the left hand side of Table VIII.2 If this were done, then the forces of supply and demand on the capital market would determine the relative prices of the various assets, which might change as the asset holders in the private sector changed their attitudes to liquidity, their expectations and so on. Alternatively, the financial authorities could set prices at which they were willing to buy and sell assets of various kinds, being ready to exchange one asset for another at the given price.
