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What would happen to nominal income and wages if the money supply were fixed (100% reserve banking). Would real wages increase, even though nominal wages would stay the same or even decrease?

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    $\begingroup$ What would most likely happen is that new private short-term debt instruments would pop up, and become the de facto money supply, which can grow. How do the authorities react to this? $\endgroup$ – Brian Romanchuk Mar 22 at 1:19
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Roughly speaking nominal wages should remain fixed but things would still get invented and production would become ever ore efficient. So real wages would increase as deflation boosted the purchasing power of your wages.

However, it may not be such a good idea to have a completely fixed money supply and deflation - it may become unstable if people noticed that storing money under your mattress was a perfectly effective way to save. If many savers started doing this then it could induce cycles of bubbles and crashes in the value of money. It would probably be better to deliberately increase the money supply by a few percent each year - just enough so that people were not inclined to save simply by storing money.

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