Reimagining the introductory material in teaching money creation and monetary policy
The Journal of Economic Education, 2020, vol. 51, issue 3-4, 297-316
The money creation and monetary policy chapters in the leading introductory textbooks commonly present an outdated and misleading approach that is now largely irrelevant. A preferable model would help students understand that money and monetary policy are about bank and household motives, the importance of capital, and the role of credit. An updated approach would move beyond the current orthodoxy, which assumes both that the mechanical base-multiplier explains monetary policy and the quantity theory explains inflation. Monetary policy has evolved dramatically in the last 40 years. Therefore, textbook authors and teachers of introductory macroeconomics might consider some of these suggestions to help explain recent events.
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