Study Guide to Man, Economy, and State with Power and Market

140 Study Guide to Man, Economy, and State with Power and Market
true that people always want more money (cash); indeed,
anyone who owns any nonmonetary asset demonstrates
that he or she does not want “more money.”
E. The PPM and the Rate of Interest
The PPM and the rate of interest are not inherently
connected. For example, the demand for money could
increase (raising the PPM), yet if time preferences
remain the same, this will not affect the (real) rate of
interest. Instead, each person could increase his cash balances
by reducing expenditures on present and future
goods in a proportion reflecting the original time preference.
F. Hoarding and the Keynesian System
“Hoarding” is a great evil in the Keynesian view. In
this approach, macro equilibrium is achieved when two
necessary conditions are satisfied: One the one hand,
total income must of course equal total expenditures
(since one man’s expenditure is another man’s income);
this necessity corresponds to the 45-degree line on a
graph. On the other hand, any individual’s expenditures
are a certain function of income; at zero income, a person
still needs to eat, and so there is a small expenditure.
Then for every additional dollar of income, the person
spends only a fraction of it. Thus an individual’s expenditure
(graphed as a function of income) is a line with a
positive intercept and slope between zero and one. The
same holds for the community, and where the community’s
line intersects the 45-degree line determines the
equilibrium amount of income.
The unique feature of the Keynesian system was that
this macro equilibrium could occur at a level where real