ABSTRACT
The second basic assumption underlying the monetary theory of aggre gate demand has to do with the effect of asset values on economic management. In most discussions of the saving-investment theory, it is assumed that asset values have little, if any, effect on either the pro pensity to consume or the propensity to invest. Yet in the challenge to Keynes’s saving-investment theory, it has already been shown that the real value of the outstanding money stock could have a very profound effect on both saving and investment. Here it will be suggested that the real value of other assets could also have a significant effect and for much the same reasons. Asset values as well as income have to be taken into account in economic management.
