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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How is the differential definition of money supply, velocity, and GDP defined?
I was reading: This article on money velocity (see the summary section)
Where two formulas are presented:
first an equality:
$$\text{Quantity of Money} (M) \times \text{Velocity of Money} (V) = \...
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2answers
791 views
How is money destroyed when banks issue debt?
Bank of England (2014):
Money can also be destroyed through the issuance of long-term debt and equity instruments by banks.
How is money destroyed when banks issue debt?
Say Bank X issues a £100 10-...
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0answers
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What are the drivers of the $4trln increase in m2 from Feb 20 to Jan 21?
M2 has increased about 4 trillion from Feb 20 to Jan 21. I know there are different theories on why that is (qe, unemployment benefits, stimulus checks, businesses drawing down on lines of credit) ...
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0answers
19 views
Relationship between CURRCIR, CURRENCY, and MBCURRCIR?
The FRED website has
Currency Component of M1 (CURRENCY)
Currency in Circulation (CURRCIR)
Monetary Base; Currency in Circulation (MBCURRCIR)
Monetary Base; Total (BOGMBASE)
M1 Money Stock (M1)
...
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2answers
38 views
Typical duration of bonds purchased in QE
I know that QE involves the purchasing of government bonds by the central bank "printing money" but I am curious about what the typical time to maturity of those bonds are. I.e. the typical ...
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0answers
15 views
Increase in money supply when price are flexible in the basic new keynesian model
I would like to know what would be the effect on price and quantities of an increase in money supply in the basic new keyensian model. What happen if price are fully flexible ? What if prices are ...
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1answer
19 views
I there an established correlation between Federal Reserve balance sheet and MB( monetary base)?
More precisely:
Are there any implied bounds for the ratio M0/FRBS with
MB= the monetary base
and
FRBS=Federal Reserve Balance Sheet?
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
...
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1answer
27 views
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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1answer
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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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1answer
40 views
Why don't Governments do away with the optics of taking on debt against new currency, and instead issue a limited currency every year (say 5% of GDP)?
Governments engage in the optical illusion of taking on debt against issued currency.
The debt is effectively owed by the Government to itself.
The value of the debt is completely controlled and ...
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1answer
29 views
Oliver Hart said that financing deficits by printing money can lead to hyperinflation “once the economy is close to full capacity”. What does he mean?
In response to a poll on Modern Monetary Theory, Nobel Laureate Oliver Hart said that Governments financing deficits by printing more money "can quickly lead to inflation or even hyperinflation ...
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2answers
44 views
For stability, is there a limit to the sovereign debt that a Government owes to itself against issued fiat currency?
Looking beyond the optical illusion of Governments owing debt to Central Banks, Governments effectively owe themselves the sovereign debt created against issued fiat currency.
By definition, there ...
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2answers
126 views
Can banks 'create' money on their own or do they need help from other banks?
My current understanding of the banking money multiplication process goes as follows: Alice comes along and deposits 100 cash into Bank A. Bank A gains 100 in vault cash (reserves) as an asset and 100 ...
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1answer
38 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 ...
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2answers
60 views
Exogenous Money Supply
In the first 10 seconds of the following video: https://youtu.be/anZ58gZcxqk,
A claim is made that in the Exogenous Money Supply Model, Money Supply is not determined by interest rates. The person ...
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0answers
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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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2answers
39 views
Can printing money with simultaneous government intervention to increase supply prevent inflation?
Just as above...If we print money and simultaneously introduce some sort of government intervention in order to increase supply/ production, then supply and demand would be 'balanced' and therefore ...
2
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2answers
66 views
What would monetarists do when interest rates approach zero and become ineffective?
So monetarist economists such as Milton Friedman focus on managing the money supply and lower interest rates as a solution to economic downturn. But what would they do in a recession as the interest ...
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6answers
648 views
How can the stock market keep growing indefinitely?
It sounds like a dumb question, but there is only so much money in the world. Assets can grow, but money can only be printed. So if there is 400 trillion dollars worth of money in the world, and the ...
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1answer
20 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 ...
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3answers
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If I shred a $20 bill, is society poorer? What is the effect on the real economy?
If the answer is yes, society is poorer, then the converse must hold true: that the government could make us all wealthier by simply printing money.
However, a collapse in the money supply must have ...
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1answer
30 views
Overnight deposits?
When considering $M_{0}$, $M_{1}$ etc, there is something called "overnight deposits" which throws me off since one can withdraw money at any time from ones bank account and so what one has ...
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1answer
34 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.
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0answers
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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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10answers
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Why do banks take deposits if they do not need them to make loans?
I have taken some economics courses in university, where I was introduced to fractional-reserve banking. From my understanding, in fractional-reserve banking, the bank has motivation to encourage ...
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1answer
104 views
Can the money multiplier happen within a single bank / a single loan?
Many tutorials explain the money multiplier effect by involving a chain of banks (e.g. khan academy)
So if reserve requirements are 10% and bank A owns 1000€ reserves, bank A can lend 900€ to bank B; ...
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1answer
23 views
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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2answers
81 views
What effect has the 30% increase in money supply from Feb-June of 2020 had?
I commented on a previous question that this is probably a better one. Old question
Generally speaking, how has the increase in money supply resulting from the CARES act stimulus package affected the ...
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1answer
96 views
Why may printing trillions of dollars not lead to inflation?
By definition, inflation should be affected by the increase of the money supply. During the pandemic, there have been numerous huge monetary policies executed, e.g., quantitative easing (QE), ...
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1answer
56 views
Does inflation equal change in M1 or M2?
According to monetarism, inflation can be predicted precisely by the change in money supply and GDP growth.
Does "money supply" here refer to M1 or M2, i.e. does it include debts created by ...
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0answers
55 views
How does the U.S. Fed printing money result in a debt for future generations?
I'm unclear when I see news articles about how the U.S. Treasury will borrow $2 Trillion in the second half of 2020, why would the Fed printing money result in a debt for future generations?
I can ...
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1answer
63 views
How does the Fed's stimulus push stocks markets higher?
I read that the Fed’s stimulus last March has contributed to a spectacular rally in stock markets. And indeed S&P500 has increased a lot since March.
But how does the mechanism work? How does the ...
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1answer
55 views
How does total money in the economy changes?
I don't understand why total money in economy increases. Where does this money come from?
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1answer
55 views
How can non-US banks issue USD loans?
I understand, commercial banks are entitled by the Central Bank to "create new money" when they issue a loan and correspondingly "destroy the money" when the loan is paid back (...
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1answer
55 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 ...
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1answer
28 views
Equation of exchange and inflation target
The inflation target is $2$% and the equation of exchange states $MV=PQ$. Is the idea that we want to have greater money supply growth then real growth in general?
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4answers
470 views
Why does an economic slowdown lead to deflation?
Usually economists say that in recession there is deflation, so increasing the money supply does not lead to a high level of inflation.
According to the Quantity theory of money, the price level is ...
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2answers
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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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0answers
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Pareto efficiency analysis of level of M1 growth from quantitative easing
BMO recently conducted an analysis on US monetary policy and noted that quantitative easing has had diminishing effects on M1 growth. Daniel Krieter wrote:
QE has fed through to the real economy in a ...
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3answers
323 views
How does an increase in USD money supply affect inflation?
Say an average american household is bringing in $50,000 a year.
Between ongoing quantitative easing and the drastic stimulus packages passed in February-May 2020, the USD Money Supply increased by 25%...
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1answer
41 views
Quantitative easing and interest rate parity
Suppose a country initiates quantitative easing by printing money and buying government debt. This will put a downward pressure on interest rates. Will this action tend to depreciate the country's ...
0
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1answer
40 views
What does the Fed do with their profits?
As far as I understand the system the Fed prints money which it then uses to buy bonds. Bonds are basically statements of debt meaning that the Fed receives interest from the parties it has bought the ...
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1answer
34 views
Does the government ever pay back its debt from the OMO to the Fed? [closed]
I'm getting confused about how exactly does money being created by the Fed.
From investopidia.com:
...
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2answers
62 views
Why does the Fed feel the need to reduce its balance sheet? [closed]
Why does the Fed feel the need to reduce its balance sheet?
What is the problem with the Fed having a large balance sheet long term? What would happen if the value on the Fed's balance sheet ...
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1answer
19 views
Why has M1 shoot up?
M1 has increased massively during the current pandemic. Below is an image from Fred St. Louis. Similar picture emerges from other countries.
According to Fed data, the increase is due to a rapid ...
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1answer
45 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 ...
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0answers
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In credit easing, how do central banks avoid allegations of unequal treatment?
In credit easing, central banks purchase private assets such as corporate bonds. How do central banks choose which corporate bonds to buy? If the central bank buys bonds of one company but not those ...
2
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1answer
61 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 ...
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1answer
33 views
How does the Monetary base, Narrow money and Broad money affect inflation?
In a lot of countries (e.g. Hungary) the M0, M1, M2 and M3 all doubled, tripled or even quadrupled in the past 10 years. How does this directly affect inflation?
Since just because M2 doubles, it ...
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0answers
20 views
Determining the price level when velocity is unknown, can k = v?
According to the quantity equation mv = py
if m = 2000, y = 400 and then if m doubles while velocity remains constant (%change in p = %change in m) would the change in P be from 2,5 to 5 or 5 to 10?
I'...
