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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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Would this alternative monetary and tax system work?

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
34 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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32 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 ...
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38 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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1answer
24 views

USA exporting inflation

I would like to ask if my understanding is correct: the US Government(more specifically the Fed) can print however much money it wants as they can easily export the inflation since many countries use ...
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1answer
19 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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1answer
30 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
25 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
42 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
71 views

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
69 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
51 views

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
23 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 ...
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1answer
37 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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1answer
42 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
58 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
37 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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Which money supply category do Home Mortgages and Small Business Loans fall under?

https://en.wikipedia.org/wiki/Money_supply#United_States I think its M3? But I'm not sure. Follow Up: Does the issuance of mortgage money not contribute to housing inflation?
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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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14 views

Required bank reserves in Brazil

Currently studying about the tools of monetary policy and one of them is changing the required reserves ratio of banks in order to reduce loanable funds or increase them. Although the reserve ratios ...
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1answer
60 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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1answer
41 views

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
98 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
35 views

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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Interpretation of a case in which There is a significant difference between consumer price index and GDP deflator?

We know the both GDP deflator and consumer price index are often used for measuring inflation. Now my question is how a case in which there is a significant difference between them be justified? My ...
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1answer
43 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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0answers
22 views

Securitization impact on maximum of money multiplier?

In economic textbooks, it is argued that in fractional reserve banking, the reserve requirement put a brake on the money banking system can create such that it can at most be the product of base money ...
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247 views

How can you show crowding out doesn't occur in a liquidity trap on a graph?

'In a liquidity trap, the excess rise in savings means that government borrowing won’t crowd out the private sector because the private sector resources are not being invested, but just saved. ...
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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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2answers
65 views

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
80 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
27 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
450 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
224 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
226 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
249 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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0answers
34 views

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 ...
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2answers
234 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 ...
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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,...
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2answers
485 views

Why are there (still) coins?

I find coins extremely inconvenient to carry and count. I feel I'm not the only one to find them annoying and inconvenient. What are some economic reasons why all cash money isn't paper and coins ...
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1answer
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Why is money in circulation a liability of the central bank?

We know that the money today is fiat currency, that it is money because the government says it's so. So when new money is printed or loaned out to the commercial banks by buying treasury bonds, ...
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1answer
186 views

Would this alternative to fractional reserve banking work?

While reading the answer to Implications of abolishing Fractional Reserve Banking on mortgages and interest rates, I started to wonder if there wasn't a simple solution to the problems that would ...
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3answers
2k views

Is the Federal Reserve issuing money in a fair way?

Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed fairly between all the citizens, and that means giving them all an ...
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2answers
92 views

When the ECB does QE, does it print new money?

I knew that when the Fed in the US buys bonds through Quantitative Easing, it does so using money it has from previous profits and that it doesn't print new money. However, I was reading this article ...
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1answer
28 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 ...
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1answer
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Why did the rate of money supply growth accelerate from 1993-96 in the United States?

Even though the rate of growth in the monetary base decelerated — and the money multiplier decreased for the most part — from 1993-96 in the United States, the growth rate of the M2 money stock still ...