Thrift Industry Analysis

The savings and loan crisis in the 1980s was precipitated by the combined effects of a multitude of factors (Kidd, 1994, pp. 104-113). Among the more significant of these factors was monetary policy. This research analyzes the effects of monetary policy on the thrift industry in the United States from the early-1970s through the early-1990s. The functioning of the IS-LM model is emphasized in this analysis.

The IS-LM Model and the Thrift Industry

The IS-LM model is so named for the two curves included in its structure. The IS curve reflects the various combinations of national income and interest rates for which leakages will be equated with injections (Franke & Asada, 1994, pp. 273-295). The LM curve reflects the combinations of interest rates and income levels that are consistent with equilibrium in the monetary sector.

The early conception of interest was that it simply reflected the rate of return on capital invested (Ekelund & Hebert, 1990, p. 90). At this time, interest, as income on capital, was considered to be analogous to rent on land. As economic theory developed, however, the nature of interest, and the determinants of interest rates began to be perceived in more complex terms. Classical economic theory eventually held that interest rates were determined by forces affecting the supply of and demand for funds. The demand for funds was held by this theory to derive from the expectations of

. . .
ynesian analysis, given the total money supply, it is not possible to determine what quantity of money will be available to hold as an asset unless the real income level (and, hence, the transactions demand for money) is first known. Thus, Keynesian analysis of interest rate determinations is as indeterminate as is classical analysis. Another development in interest rate theory was the loanable funds theory of interest. Loanable funds are comprised of the money which is available for lending to individuals and institutions (Wray, 1994, pp. 285-306). The principal sources of such money are the savings of individuals and businesses, increases in the money supply through actions by government and financial institutions, and dishoarding from idle balances. The loanable funds theory of interest holds that the interest rate is determined by the intersection of the demand for loanable funds and the supply of loanable funds (Ekelund & Hebert, 1990, p. 455). The loanable funds theory of interest is characterized by the same fault as are the classical economic theory of interest and the Keynesian theory of interest--it cannot provide a solution to interest rate determination. The loanable funds supply varies with the level of dispo
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Some common words found in the essay are:
Ekelund Hebert, Federal Reserve, Various Theories, President Congress, Carter Congress, INDUSTRY Introduction, Kaldor Trevithick, IS-LM Model, Franke Asada, Keynesian Theories, loanable funds, federal reserve, monetary policy, economic theory, is-lm model, classical economic, real income, classical economic theory, money supply, ekelund hebert 1990, funds theory, hebert 1990, loanable funds theory, functioning is-lm model, actions federal reserve,
Approximate Word count = 2821
Approximate Pages = 11 (250 words per page)

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