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Banking Policy

In: THE LIMITS OF FISCAL, MONETARY, AND TRADE POLICIES International Comparisons and Solutions

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  • Jonathan E Leightner

Abstract

Utility maximization theory is one of the foundation models of economics. According to this theory, people choose to maximize their personal benefit subject to a budget constraint. If all people are given the freedom to choose, they will each maximize their personal benefit, resulting in a maximum of social well-being given the current income distribution. This theory works best when applied to individual decisions that do not affect other people and when applied to relatively short time frames. If what maximizes my utility produces pollution that makes someone else sick, then social well-being may not be maximized. Furthermore, since utility maximization is subject to a budget constraint, how income is distributed will affect who benefits the most from their choices and the total amount of benefit produced. These are important issues, but the issue I want to focus on here is the time frame used for utility analysis…

Suggested Citation

  • Jonathan E Leightner, 2014. "Banking Policy," World Scientific Book Chapters, in: THE LIMITS OF FISCAL, MONETARY, AND TRADE POLICIES International Comparisons and Solutions, chapter 2, pages 11-22, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814571883_0002
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