Questions tagged [money-supply]

Use for questions primarily related to the stock of money, either narrow money (MB or M0), and broad money (M1, M2, etc). This can also be used in questions related to the creation of money by governments and central banks, including questions related to models with a money market like IS-LM, where the supply is of importance.

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Quantity theory of money

Suppose the velocity of circulation (V) is constant. Annual growth rate of real GDP is 5%. The money supply grows by 14% per year. Use the quantity theory of money to calculate the inflation rate. My ...
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8 views

What is the effect on money multiplier of the following three cases?

Assuming ceterus paribas in each case: (i)The bank expands its operations in the field of financial derivatives. (ii) Increasing competition leads to a fall in the transaction costs incurred by ...
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Difference between IS curve viewed by Keynes and by Friedman

In my economics lectures, we are going through Keynes vs Friedman. As far as I got we have a downward sloping IS curve in the IS-LM model. We get this curve from the Keynesian cross when the rate of ...
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57 views

How do people check or trust that central bank is not cheating? [closed]

How people can be sure that somebody, cooperating with central bank (or working in it), is not creating money in digital or paper form for themself, so that nobody else notices it?
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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 ...
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1answer
39 views

The value of money in a model economy. Has this been addressed?

Consider the following question: "Given a simplified economy which produce and trade some products A,B,C etc... with N agents and a total money supply of M. What will be the price of A, B, C as ...
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3answers
79 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 ...
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26 views

why not we use one universal currency? [duplicate]

I have a little knowledge of "why we still use multiple currencies?" but it does not make a click in my brain or the sense in reasoning that much that some country that is not influenced still use the ...
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41 views

Demand for real money balances worked out example

I was looking through some macroeconomic textbooks and came across a seemingly simple equation that derives the demand for real money balances, I also included the explanation for each part of the ...
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28 views

What is the impact of money “sent” to another country?

I've been thinking about this a lot and I am not sure I have understood correctly. I was thinking about, for example, migrant workers who send a portion of their income back home, or wealthy ...
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101 views

Why are banks allowed to resell mortgages?

It just seems like a way to get around money creation limits imposed by liquidity requirements. For example if a bank creates new money by extending new morgages then securitizes them and resells them,...
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21 views

Distribution function for number of people owning x in assets by country

I would like to know, where I can find, for each country, the graph of the following data distribution: On the x-axis, money amount, in thousands dollars or other currency. On the y-axis, for graphs ...
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35 views

Is it true that when the overall money supply decreases, that the demand for money decreases and the demand for bonds and securities both increase?

Is it true that when the overall money supply decreases, that the demand for money decreases and the demand for bonds and securities both increase? I understand that to increase the money supply, the ...
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61 views

Nominal vs real growth of monetary base

Can someone clarify the difference between nominal and real growth of monetary base? I believe it is the policy of some central banks to target for example 0% nominal growth in the monetary base. What ...
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How does the central bank fund open market operations?

This may seem like an extremely simple question, but I have been unable to find any satisfactory information on this. How, practically, does the central bank generate the funds to purchases ...
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1answer
113 views

Would taxing money owned (as a share of purchasing power) be a better form of taxation?

Consider a nation whose money is entirely digital (like Bitcoin), but centralized (unlike Bitcoin). Furthermore, the total money supply is fixed, i.e. money cannot be created nor destroyed. To be ...
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4answers
64 views

Does Bad Money Drive Good Money Out Of Circulation

I have heard the saying, "Bad money drives good money out of circulation," (Gresham's Law) many times. I'm wondering if it's true, what it really means. What's good money? What's bad money? And if ...
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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 ...
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779 views

Did the robbers from *Money Heist* real steal noone's money?

Money Heist (original Spanish title: La Casa de papel) is a Spanish TV show about a bank heist. From Wikipedia (bolding mine), In Money Heist, a mysterious man, known as "The Professor", is ...
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26 views

Change in money supply

Suppose a bank makes a loan of $1M to someone taking out a mortgage to buy a house by crediting that person's bank account with a deposit equal to the size of the mortgage. Suppose the required ...
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68 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 ...
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2answers
33 views

What does it mean to “print money”?

In my intro macroeconomics course, my professor tried to emphasize that the money supply changes ONLY by increasing or decreasing lending activity. However, I feel like he was trying to focus on ...
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1answer
45 views

Why don't we mint more m0 instead of creating m1 through fractional reserve banking?

From what I understand, m1 money is just as liquid as m0 since an individual can withdraw it from the bank at any time and in any quantity (up to the amount (s)he deposited). Because of this I don't ...
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2answers
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Why doesn't the central bank extend loans directly?

I've been thinking about the credit theory of money lately and how it creates money. Since Banks look for sufficient reserves after extending a loan, and since the central bank always loans out money ...
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4answers
115 views

Understanding interest rates

When a central bank 'pays' interest rate X / year, what does it mean exactly? Is that pure money printing? Where does that money (interest rate) come from? does it increase the debt of the country? A ...
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1answer
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Why hyper-inflation?

I understand the $MV=PQ$ identity. I also understand the benefit for the government in some cases to having non increasing over time (even if high) values of $\Delta P$ (stealth tax & seigneur-age ...
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1answer
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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 ...
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55 views

Intuition behind Real Money Demand and Real Money Supply

Standard undergraduate textbooks begin with an exposition of the money market with the following equilibrium condititon: $$\frac{M^{s}}{P}=L\left(R,Y\right) $$ In the above, the LHS is what is ...
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83 views

Can the Fed raise the M1 money supply permanently w/o helicopter money?

I just read parts of an introductory economics book. I read about the monetary system in the U.S. and came up with the following question: Can the Fed raise the M1 money supply permanently without ...
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1answer
59 views

Cons of printing more money but not injecting in the system directly

So I don't know if this might be the right place, if it isn't I'd appreciate if anyone can link me to the right place. Anyways here is the question. I've read up on what are the cons of printing more ...
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3answers
51 views

Will periodical increasing and decreasing cryptocurrency supply peg cryptocurrency to dollar effectivelly?

As far as I understand, in order to make cryptocurrency pegged to USD we need somebody to take the risks of exchange rates. So, if ratio CRYPTO to USD is at a given time 1CRYPTO:1,1 USD, then we ...
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2answers
41 views

What would be the effect on the economy if the United States legalized counterfeiting?

If today the United States legalized counterfeiting, what would be the effect on the economy? The counterfeit must look authentic to be legal, thus requiring some skill.
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Question on money supply related to new crypto project

Following questions are related to a crypto project I am working on and proper answers are of utmost importance to this concept's development. I unfortunately lack expert knowledge about money supply ...
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How does changing the Bank of England base rate work?

If we assume the demand for money (D above) is fixed in this position (for the purposes of this question), and supply (S) is fixed in this position, then how can the BoE change market interest rates (...
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215 views

How does a decrease in money supply affect price levels and Real GDP in the short run?

Specifically, when a short run AS curve is positive, how does a decrease in money supply affect price levels and Real GDP in the short run? Thank you!
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What is the actual numerical value of the velocity of money?

All the discussions of the velocity of money that I've come across (e.g. here, here, and here) only display relative changes in the velocity of the money (e.g. by normalizing it by an unspecified ...
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2answers
328 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 ...
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1answer
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Can the amount of loans and deposits in entire banking system differ significantly?

Can the amount of loans and deposits in entire banking system differ significantly? When regarding the entire banking system, what factors impact the loans to deposits ratio? Is it roughly constant ...
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1answer
52 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 ...
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190 views

Friedman's version of money multiplier formula

In his Quantity Theory of Money article M. Friedman uses the following formula for the money multiplier: $$ M = H \times \frac{\frac{D}{R}(1 + \frac{D}{C})}{\frac{D}{R}+\frac{D}{C}} $$ where $M = $ ...
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Considering how USD enters the market, is the USD actually unbacked? Could the USD represent a unit of a “fund” of securities held by the Fed?

From my understanding, all new money enters the market either 1) by the Fed lending it to banks, so the Fed essentially owns bonds in the exchange, or, 2) The Fed purchasing other financial assets. So ...
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Does Not Having a Fractional Reserve System Cause More Inflation?

It is my understanding that countries without fractional reserve requirements still have capital requirements, but what I do not understand is how equity can be used to satisfy these requirements ...
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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 ...
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1answer
84 views

Inflation and stock price

I have indicated my understanding and problem on the attached image below. I'm a bit confused on the impact of inflation on stock price. As increase in inflation would cause nominal interest rate to ...
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1answer
39 views

Does money neutrality mean that nominal GDP (output) changes following changes in money supply?

If money neutrality stipulates that only nominal variables will be affected following changes in money supply, then does this mean that following such money supply changes, real GDP remains unchanged ...
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2answers
690 views

interest rate and money supply

When the interest rate increases, I learned that money supply decreases because people put their currency back in banks in forms of assets and tend to save more, spend less. However, money supply ...
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0answers
357 views

Money Neutrality and Real Interest Rate

I learned from the Fischer Effect that Real Interest Rate = Nominal Interest Rate - Inflation Rate . But in today's class the professor told us that due to money neutrality, an increase in money ...
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4answers
841 views

The sequence of Money Supply - Interest Rate

Until now I've learned that the Fed controls the interest rates and that affects the money supply. For instance, The Fed increases Interest Rate ----> makes firms/households reluctant to borrow and ...
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3answers
285 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 it. I'd like to know if this would work, as I see if offers many advantages over our debt-based monetary system today. A ...
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Does Fannie Mae get money from the FED

Does Fannie Mae directly or indirectly get money that is printed from the federal reserve to buy mortgages, or have they ever? If so, when has this happened? How much money? What is the process by ...