ABSTRACT
In the short term, the supply of capital assets is fixed; therefore, an increase in demand will lead to an increase in the price. Innovations in mobilizing funds through intermediation and in the contracts used for financing ownership of assets will tend to raise the
Money Market Funds
Asset prices, investment, and financing
(1) C = WcNc + WINI ;
(2) 1T c = PcQc - WcNc = WIN]; and (3) 1T] = p]Q] - WIN] = 1Tr
The combination of automatic stabilizers, lagged adjustments to past inflation in various government transfer payment schemes, and discretionary fiscal intervention means that when financial stringency is followed by a fall in investment, a massive government deficit occurs. Profits are sustained even as business activity and employment decrease. As a result, the business sector is able
Conclusion
A comparison of 1929-1933 with 1966, 1969-1970, and 19741975 makes it clear that when a financial crisis is imminent, the structure of the economy and discretionary intervention by the authorities determine what happens. At such a juncture, policy does matter. If, as in 1929, aggregate federal government spending is small relative to investment, and if the Federal Reserve takes a narrow view of its responsibilities, then a debt deflation and a deep depression will follow financial trauma. If, as in 1966, 19691970, and 1974-1975, aggregate government spending is large relative to investment, and if the Federal Reserve takes a broad view of its responsibilities, then stagflation and a stepwise accelerating inflation will follow financial trauma.
