All Questions
Tagged with macroeconomics money-supply
96 questions
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The cantillon Effect asumes that money is not nutral right?
I am a austrian high school student and as a part of our final exams we have to write a small scintific paper. I decided to write about the Cantillon Effect and its implications and realised that ...
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1
answer
55
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What results in the money supply permanently increasing over the long term?
So, from what I understand, some ways in which the central bank increases the money supply is through
Open market operations/buying government bonds: But eventually the bonds mature, and the money is ...
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0
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42
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Savings when money market is in equilibrium (LM curve in IS-LM model)
When the money market is in equilibrium, supply of real money balances is equal to the money people hold in hand as liquidity, right? Which means entire real money balance is at hand as liquidity (...
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1
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490
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Why must goods in the country will be purchased with the entire money supply in the country?
In russian books it's written that there is balance between commodities and money. And this balance guarantees that all goods in the country will be purchased with the entire money supply in the ...
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30
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Is there a global flow of income?
If I understand the circular flow of income correctly, we can visualize money moving around the country in exchange for goods and services. Sources of money are the central bank (MB) and the financial ...
user43089
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Where is the central bank in the circular flow of income?
In the five-sector breakdown of the circular flow of income (below), we account for leakages and injections from the financial, government and overseas sectors. My understanding is that the government ...
user43089
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1
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75
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Large quantity sale of CNY at current currency value
Some company wants to sell large quantity of CNY and buy USD on Forex. Let current currency value is 1 CNY = 0.14 USD at the time moment on Forex. When company sell large quantity of CNY, money supply ...
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1
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229
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How to prove that an increase in the money supply leads to devaluation of the currency?
In one article I've read that increase in the money supply leads to inflation and exchange rate change.
For example, if we have double increase in the money supply then we'll have double change in ...
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3
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373
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Money Creation Confusion
I've been studying money creation recently and have come across some contradictory statements and different types of theories that I'd like to clear up.
The classical theory of money creation which ...
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2
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497
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How can Real GDP increase while Money Supply remains fixed?
I'm studying the Money Market Graph with it's Money Demand and Money Supply curves. In the classical model they teach the Money Demand curve as sloping down to the right while the Money Supply curve ...
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2
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90
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How can debt be larger than gdp? [closed]
government is taking debt because they spend it all at once and pay it over time so if you spend all at once there will be increase in gdp(multiple increase in gdp as money changes hands multiple ...
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2
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565
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Is it possible for the stock market to beat inflation forever?
Just a few thoughts on the possibility of markets beating inflation in the long, long term (say, hundreds of years). I am a theoretical physicist, not an economist, so please forgive my ignorance.
I ...
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Why isn't the money demand function called the real money balances demand function?
M=Money supply
P=Price
k= How much money people wish to hold for each dollar of income = exogenous.
Y = output
M/P= real money balances
Money demand function: (M/P)^d = kY
Why isn't the money demand ...
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51
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Question about money supply and the nominal interest rate
How does an increase in money supply, due to a decrease in the REPO rate, decrease the nominal interest rate?
If an increase in money supply means more inflation, how doesn't inflation lead to ...
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98
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What happens to Deposits when purchasing stock shares or money market fund shares?
I'm trying to understand the flow of money into the shadow banking sector, e.g. what happens when deposits are transferred to either a brokerage, or a money market mutual fund (MMMF), and specifically ...
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1
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45
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Significance of yield spreads in highly liquid environment?
I've come across this chart from a few months ago and am unable to trace down its origins. But I would like to think I should be able to decipher it even without the authors whispering in my ear. So ...
- 1,101
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Why Increase in Money Supply Reduces Interest Rate in Money Market?
I understand the fact the Increase in Money Supply reduces the interest rate in Money Market.
But these two explanations are confusing me a lot. I'm not able to understand which is correct.
Reason 1
...
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Is it accurate to say reverse repo is 'conflicting' with monetary policy?
As seen in the chart, historically, reverse repo levels have been fairly small or at most, a few hundred billion dollars:
Now into the USD trillion handle, it's a more prominent fixture of the money ...
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24
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Money-market model: Income rises, bond prices fall. But if income rises, saving increases — in bonds. So why does rising income lower bond prices?
According to the money market model that determines the equilibrium interest rate at which the demand for money in the economy equals the supply of money: when the money demand curve shifts right for ...
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421
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Chain effects when Money Demand is greater than Money Supply
Here is an example graph of Money Market Equilibrium
The chain effects when interest rate is 8% are :
Excess Demand for Money => So, People would sell Bonds => Bond Prices goes Down => ...
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1
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72
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Bond market downturn - how does money supply change?
When people are pessimistic with bond-holding due to the bearish bond market, chances are high that they would change the ratio of portfolio (i.e., increase the ratio of money, decrease the ratio of ...
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132
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Is excess liquidity necessarily a leading (not lagging) indicator of market performance?
I'm basically looking at this chart:
At first glance, I'm not sure it's clear as to why excess liquidity (money supply growth less GDP growth) is charted a whole 12 months ahead in the series. I ...
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2
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118
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Why don’t sovereigns like Venezuela just immediately replace the currency in event of a hyperinflation
I am struggling to understand why governments, when faced with hyperinflation, often let it drag out for years rather than bite the bullet and replace the currency. Given that by that point the ...
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Monetary sterilization’s working is wrong?
Say, there is an increase in demand for dollars (as compared to the other currency, say yen), which will put appreciation pressures on dollar.
Then to counter this appreciation, we need to buy yen. ...
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3
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153
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How do we know that inflation derives from supply chain issues and not from monetary expansion of Central Banks?
Everybody is talking about the fact that the current inflation derives from problems on supply chain distribution but Fed also printed tons of money.
How can they affirm that inflation is from supply ...
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64
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Why does absolute price inflation depend on interest rate while relative price inflation does not?
This is a follow-up of my previous question: How come there is inflation in a model with no money? I have answered my own question with an example.
To briefly recap the example, consider a closed ...
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2
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786
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How come there is inflation in a model with no money?
I'm watching the video lectures of Financial Theory (ECON 251) by John Geanakoplos, Yale University. In Lesson 5, Chapter 4 at 33:41, Geanakoplos defined inflation as the ratio of prices between two ...
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1
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80
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Does money hidden in "Moneyland" (offshore etc) get included in money supply and savings ratio statistics?
The recent Pandora Papers fuss has prompted me to ask a question that has been on my mind for a while.
Does money hidden in offshore trusts, nominee companies and the various other Moneyland ...
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1
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73
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Would printing money be necessary for remedying macroeconomic problems such as underemployment and overindebtedness if trade was balanced?
Printing money is often touted as the solution to the macroeconomic problems faced by developed economies today, namely lacklustre GDP growth, public and private overindebtedness and underemployment. ...
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141
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Will interest rates rise if a government runs a huge budget deficit?
My (very simple) logic is this:
if government decides to spends a huge amount of money it does not have (meaning that it does not come from taxes) then it will borrow that money and thus create a lot ...
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3
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318
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long run growth of money supply
I am trying to understand how the money supply (bank deposits + currency) grows over time (in the long run).
start of edits
I am not asking 'how do we know it grows?' or other high-level observations ...
user34331
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42
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To what extent can cryptocurrencies be influenced by monetary policy?
Background
In modern economies, at least up until ~10 years ago, it was assumed that a currency would be technically able to be subjected to monetary policy, that is, where more money is created or ...
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2
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401
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Why in the quantitative equation: $MV=PY$, $V$ and $Y$ can be taken as fixed?
To equation is
\begin{align}
MV=PY
\end{align}
where $V=\frac{1}{k}$.
Why $V$ and $Y$ can be taken as fixed or constant?
Why can $V=\frac{1}{k}$ too?
Thanks in advance
- 215
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1
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47
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LM-Curve formula question
An LM Curve can be described as following
$M^d(Y,i) = M_0 + M_1Y – M_2i$
$M^d = M/P$
M and P are exogen
I know that $i$ is interest rate, and Y is GDP.
Why is $M_1$ and $M_2$ positive? And what does $...
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3
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What is the difference between "borrowing" money and "printing" money?
When a country's government has a budget shortfall, that country has to find some way to pay its contractors/emplooyees. Unlike a normal company, the government can't simply go to the bank and ask to ...
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Do open market operations permanently increase the money supply?
Suppose the Fed buys 1000 dollars worth of T-Bills in the open market to try decrease interest rates and increase the money supply. It does this by printing money and electronically increasing the ...
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0
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22
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Liquidity puzzle in the representative household model
In a cash in advance representative household model, the nominal interest rate may be determined by
$$\frac{1}{1 + i_t}= βE_t\left(\frac{M_t}{M_{t+1}}\right)$$
where $\beta$ is the discount rate.
I'...
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Plotting money market equilibrium for 2020
I am trying to roughly sketch up supply / demand curves by parameterizing the major happenings in the money market in 2020. I intend to use this chart as the template:
Below, I'll outline my thought ...
- 1,101
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1
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51
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Model with money creation
is there any macro model/paper introducing money creation (ex nihilo money creation) ? I would be very interested in reading them.
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0
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How would a global Robin Hood deed affect the economy? [closed]
In one fiction series about a dystopian world, a small group of wealthy criminals owned a large fraction of the world's cash, which was on their bank accounts in a single offshore bank. In the happy ...
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1
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58
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Why is deflation a likely short-term of an increase in M2?
The year-on-year growth in M2 — a broad measure of US money supply —
has rocketed this year due to the efforts of monetary and fiscal
policymakers to reduce the economic damage caused by the pandemic.
...
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136
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How buying bonds indirectly from the government prevents the central bank from financing government deficit?
From Krugman's macroeconomic textbook (highlighting is mine):
"In an open-market operation the Federal Reserve buys or sells some of
the exist- ing stock of U.S. Treasury bills, normally through ...
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2
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367
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Does people paying back their debts cause deflation?
The majority of the monetary supply results from credit, with every loan creating pairs of assets and liabilities representing the same underlying value. Considering that every time someone pays back ...
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1
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83
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Does Direct Benefit Transfers make an economy poorer?
Printing money and giving to the poor causes inflation.
Increases demand and hikes prices. This is basically certain.
But on the contrary, a paper titled Debunking the Stereotype of the Lazy Welfare ...
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1
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117
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How do debt-free governments control the money supply?
From what I read in my introductory macroeconomics textbook, central banks can control the money supply by selling government bonds in the market (decreases money supply), or by buying government ...
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1
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134
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How yield rates influence the "cost of borrowing" for borrowers
I am currently learning about quantitative easing, and I am having trouble understanding yield rates and how that influences the "cost of borrowing".
This is the resource I am using.
The lecturer ...
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1
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61
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Can setting bank's reserve requirement ratio in 100% simulate gold standard?
Statement:
If you want a gold standard, it's easier to set bank's reserve requirement to 100%.
Context:
This was a comment in a video telling how government actions influence monetary inflation.
...
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1
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58
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Would saving money outside of banking system be able to reduce monetary base?
First of all, here is definition of monetary base taken from Investopedia
A monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in ...
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60
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What would happen if the U.S. "refinanced" its national debt?
Interest rates are at historical lows. I believe they went negative in parts of Europe recently. Since interest on the national debt is one of the biggest, if not the biggest, expense item of the U.S. ...
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1
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134
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Why was the price of gold lower when gold confiscation act was issued but raised afterwards?
I was reading up on the gold reserve act which made it illegal for US citizens to own gold with some minor exceptions.
According to the gold confiscation act which was issued before the gold reserve ...
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