All Questions
Tagged with macroeconomics money-supply
96 questions
10
votes
3
answers
1k
views
What is the calculable effect of counterfeiting on an economy?
I'm curious whether one can numerically calculate the effect that counterfeiting has on an economy.
As I understand it, counterfeiting essentially amounts to theft of the wealth of everybody holding ...
- 273
9
votes
8
answers
10k
views
How does the money supply behave when bank loans are repaid?
In a fractional reserve system when banks lend out money, that money is created out of thin air by a accounting journal entry, and the money supply goes up by the amount of the loan & when the ...
- 93
6
votes
6
answers
2k
views
Does the money's "Store of value" function actually exists?
I'm aware of the following four functions of money:
Medium of exchange.
Measure of value (in dollars, pounds, etc.)
Standard for exchanging goods (guaranteed by the Fed)
A Store of value (as an asset)...
- 171
5
votes
2
answers
7k
views
Why is the money supply perfectly inelastic?
From my notes:
We analyze the determination of the interest rate using a supply/demand model relating the interest rate (price of money) to the quantity of money. Since we assume:
1) no excess ...
- 160
5
votes
2
answers
266
views
Unlimited supply of national currency?
I was reading this article about Denmark central bank defending its currency peg:
http://www.bloomberg.com/news/2015-01-22/denmark-cuts-key-deposit-rate-to-minus-0-35-to-drive-down-krone.html
In it ...
- 151
5
votes
1
answer
94
views
What impact did monetary policy actions taken during the Great Recession (2007-09) have on U.S. economic performance?
What impact did monetary policy actions taken during the Great Recession (2007-09) have on U.S. economic performance?
Quantitative easing and unconventional policy actions such as asset purchases and ...
- 171
4
votes
3
answers
1k
views
Why doesn't the government create money, spend it for free without interest, and recollect it with taxes?
I was thinking of a better monetary system, and here is what I came up with. I'd like to know if this would work, as I see if offers many advantages over our debt-based monetary system today.
A new ...
- 149
4
votes
1
answer
109
views
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 ...
- 171
4
votes
1
answer
136
views
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 ...
- 1,135
4
votes
2
answers
4k
views
What are the logistic implications of using bottle caps as currency?
I have recently been playing the game of fallout 4 and I was struck by an interesting spec of the game.
People in the nuclear post-apocalyptic world use bottle caps as barter money.
Inquiring a ...
- 43
3
votes
2
answers
626
views
Why has M1 grown a lot faster than M3 after the financial crisis?
While the fed has printed a lot of money the last decade and the M1 money quantity growth rate has gone up significantly (red), the M3 growth rate (blue) is almost exactly the same as before the ...
- 115
3
votes
3
answers
127
views
Creation of Money - Hypothetical Situation
Imagine you sell me some consulting services. I don't have any cash, so I give you a $100 IOU instead. You now have a $100 Note Receivable on your Balance Sheet.
...
- 328
3
votes
2
answers
4k
views
Why is M0 higher than M1?
In my understanding, M2 includes M1 and M1 include M0. However, I checked the money supply here and used the "Compare" function to compare the money supply of m0 with money supply of m1, and found ...
- 33
3
votes
1
answer
57
views
How does the money supply grow in the long term?
For inflation to happen at roughly 2%/yr and for people to trade the same (or higher) volumes of goods, people must be trading more money. For such a trend to exist in the long term, there must be ...
3
votes
1
answer
608
views
Is money lent by central banks to private banks counted in MB or M1?
If a bank borrow money from a central bank but keeps it as a reserve instead of lending it to someone else, is it counted in the monetary base (MB) or money supply measure M1, using US definitions ?
...
- 131
3
votes
1
answer
172
views
Reactions of the Money Market
Here's the image of a money market with two different money supply and demand curves:
Here are some questions regarding money market reactions. I'll always write my proposed reasoning underneath each ...
- 145
3
votes
0
answers
76
views
Why is money super neutral in Brunnermeier and Sannikov's I theory of money?
I'm wondering why money is super neutral in Brunnermeier and Sannikov's "I-theory of money", but is not super neutral in their 2016 AER paper "On the optimal inflation rate".
In the I-theory of money,...
- 31
2
votes
2
answers
118
views
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 ...
- 335
2
votes
2
answers
786
views
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 ...
- 480
2
votes
3
answers
733
views
LM curve: How interest rate is changing without OMOs by the central bank?
The following is the gist from chapters - 3, 4 & 5 dealing with IS-LM model from Macroeconomics, Blanchard & Johnson, 6th edition.
Equilibrium in the financial market implies an increase in ...
- 123
2
votes
3
answers
250
views
How important are capital requirements for controlling broad money supply?
Interestingly, the Bank of England (BoE) is one of the few central banks that does not have reserve requirements.
Canada, the UK, New Zealand, Australia, Sweden and Hong Kong have no reserve ...
2
votes
1
answer
73
views
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. ...
- 335
2
votes
1
answer
226
views
Why is the cash in circulation on the rise in rich countries?
The amount of cash in circulation is on the rise in rich countries (US, EU, etc; except the cashless economy, Sweden). In the digital era, isn't this phenomenon contradictional?
For example, here's ...
- 1,044
2
votes
1
answer
70
views
Why does changing the value a currency help/hurt exports if sellers can just inflate/deflate prices to match the change?
1) I make widgets and sell them for $10.
2) The government reduces the value of my currency by 10%.
3) The market value of my widgets is the same as before, so I raise my
prices to $11 and I can ...
- 123
2
votes
1
answer
7k
views
How government borrowing from central bank increases money supply in economy?
Yes, public finance by government may lead to increase in money supply in economy. But, if govt borrows money from central bank, less amount of money is left with central bank to lend it to banks and ...
- 21
2
votes
2
answers
367
views
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 ...
2
votes
2
answers
820
views
What is the effect of expansionary fiscal policy in case liquidity trap situation?
I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is ...
- 249
2
votes
1
answer
70
views
Other factors that affect the supply of money
I've read that it is not a hard-and-fast rule that the overall money stock growth rate speeds up in response to an accelerated expansion of the monetary base and a growing money multiplier. If this is ...
- 37
2
votes
1
answer
229
views
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 ...
- 139
2
votes
1
answer
117
views
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 ...
- 563
2
votes
2
answers
101
views
Why did it take so much QE by the ECB to raise the Eurozone inflation to 2%?
From 2015 to 2018 the ECB increased the money supply by around 20% (around 6% y/y), with a GDP increase rate under 1%. Yet the inflation rate remained under 2%. A back-of-the-envelope calculation ...
2
votes
1
answer
284
views
Wealth Creation: Where does the money come from?
I'm trying to better understand wealth creation– let's use trade as an example.
I've bought a cup for \$2 and sold it for \$10. We've "created some new wealth" there– but without a net increase in ...
- 121
2
votes
1
answer
91
views
How to determine the worth of a good
I've searched around the web for awhile now and I'm beginning to think this might be an unanswerable question. I want to know if there is a theoretical way to determine the worth of a particular good, ...
- 23
2
votes
0
answers
22
views
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'...
- 5,121
2
votes
0
answers
255
views
Effect of Import Tariff on Supply of Currency on Foreign Exchange Market
I'm struggling with this question below for my macroeconomics course.
If Argentina were to impose a tariff on its imports, how will the supply of Argentina's currency and its exchange rate be ...
- 23
2
votes
0
answers
21
views
Theoretical - Direct Money Supply model
The following question is based on a hypothetical scenario, in which the goal(s) is/are to identify how system participants may use/abuse the system to their benefit.
You are in the fortunate ...
- 81
1
vote
3
answers
373
views
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 ...
- 25
1
vote
1
answer
83
views
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 ...
- 11
1
vote
1
answer
60
views
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. ...
- 1,109
1
vote
2
answers
565
views
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 ...
1
vote
1
answer
45
views
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
1
vote
1
answer
80
views
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 ...
- 219
1
vote
1
answer
42
views
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 ...
- 671
1
vote
2
answers
401
views
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
1
vote
1
answer
79
views
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
1
vote
1
answer
51
views
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.
- 457
1
vote
1
answer
134
views
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 ...
- 162
1
vote
2
answers
157
views
Is fiat currency better than a backed-currency?
My question is would it be better if we went back to something like a gold standard but backed by a finite virtual material instead? It avoids the problem of fluctuations in gold supply. The money-...
- 21
1
vote
1
answer
44
views
Liquidity Trap Question? Return to equilibrium
As far as I inderstand a liquidity trap occurs when increasing the money supply is not able to stimulate the economy because people prefer hoarding the cash rather then investing in debt securities ...
- 113
1
vote
1
answer
55
views
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 ...
- 11