Question

1. Compare and contrast the exogenous and endogenous views of the money supply process. Integrate the endogenous view into the Keynesian analysis of the investment- saving relation

2. What are the institutional mechanisms through which banks can extend their lending capacity beyond the limits imposed by reserve requirements?

Answer 1

• Exogenous money predicts Reserves or base money.
• It moves first followed by the broader credit based measures of money supply.
• Exogenous supply predicts Reserves moves last..
• Exogenous money predicts that the central bank can control the quantity of money.
• While Endogenous money predicts that it must play the role of Accommodation otherwise the Economy will implode.
• Exogenous money predicts only distrbution not private debt matters..
• It also predicts that Reserves factor into banks lending decisions
• Endogenous money predicts that increase in money will be minimal.

1. Integrating Endogenous view into the Keynesian Analysis of the investment saving relation incorporates different understanding of human behavior as they do not believe that investors are Rational profit maximize.
2. It also argues that uncertainty about future is unmeasurable and will have strong influences on investment activities.

• There are many ways through which the financial institutions find Reserves beyond their lending capacity.
• Also known as liability management.
• One of the way is to use the unutilized reserves of other Financial intermediaries .
• Expanding their lending capacities.
• Draw foreign forces to Expand their lending capacities.