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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1answer
18 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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3answers
428 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
39 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 ...
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0answers
21 views

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
262 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
25 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 ...
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1answer
30 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
30 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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0answers
17 views

If floating money doesn't increase for a country, does it not affect that country's currency value and the rest of the world? [closed]

Say, if a country has \$100 trillion of dollars floating in the whole world, in year 2010, and then when it is year 2020, the country now has \$150 trillion of dollars floating in the whole world, but ...
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2answers
46 views

Why does the Fed feel the need to reduce its balance sheet?

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
17 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
35 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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26 views

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 ...
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1answer
52 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
23 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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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'...
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29 views

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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1answer
35 views

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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1answer
72 views

Does constant money supply hinder economy?

Consider an hypothetical isolated economy (an island) where: the only form of money is Coins the amount of Coins is constant the Coins are never lost or destroyed In that scenario: can the economy ...
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1answer
83 views

Why is the US rating AAAA+ after they printed trillions of dollars out of thin air, and bailed out the US stock market? [closed]

When any other country tries to print, there's huge inflation, devalued currency, bad ratings from rating companies (mostly US go figure why?), interest rates increases. But why don't these happen to ...
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1answer
26 views

Does m0 increase money supply?

If m0 can only be created as an exchange of federal reserve deposits does this mean that m0 does not increase money supply?
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1answer
18 views

Can a commercial bank lend money from transaction/checking account as it would from a deposit account?

Transaction/checking accounts are highly liquid - M1 Deposit accounts are less liquid - M2 Per fractional reserve system, banks lend deposited money as credit to clients provided they keep a reserve ...
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1answer
19 views

Can we figured out the total money supply using MB? [closed]

If we look at the total in the federal reserves account Here at the moment is about 3 trillion and if the reserve requirement is 10% does that mean that there is at least 30 trillion out there in ...
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1answer
23 views

Can m0 be created as a loan? [closed]

Are the following true? m0 is only created by destroying something else (federal reserve deposits)? m0 can be created as a loan? Related questions: can something other than federal reserve deposits ...
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1answer
28 views

Did Bitcoin increase the money supply of the world?

I was reading about M2 and it somehow got me asking this question: did Bitcoin, by merely popping into existence, increase the money supply of the world? Is it classified as "near money"?
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1answer
25 views

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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1answer
37 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. ...
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0answers
17 views

Why does the money supply graph have nominal and not real interest rate as the y-axis

Why does the money supply graph have nominal and not real interest rate as the y-axis. And, shouldn't an increase in money supply cause and increase in inflation and thus nominal ir.
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1answer
40 views

Why has QE produced hyper-inflation in other countries, but not US and China? [duplicate]

QE and similar methods ("printing money", increasing M2 money supply) have caused currencies in countries such as Zimbabwe and Venezuela to collapse. Why hasn't it caused similar issues in countries ...
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1answer
53 views

The government does not need to gather capital via tax and Treasuries to spend? According to MMT

I have watched Warren Moslers interview. https://www.youtube.com/watch?v=W97s3zbFKvc&t=841s. At 7:26 he says that the Treasury does not issue securities for the purpose of financing spending (it ...
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26 views

What happens if you cannot lend more than what you have?

This is hypothetical but what would happen if you cannot lend more money than you have? Say you have £100, the maximum you can lend is £100. But somehow you lend £200 to Joe, and Joe spends all of it ...
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1answer
11 views

How does the Fed measure the shadow banking sector in the US?

It's apparently popular to say on TV [at 2:20 in that clip] that the Fed has no idea what's going on in shadow banking sector. To what extent is that true? (I could ask this on Skeptics as well given ...
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27 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 ...
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1answer
41 views

Universal basic loan

I'm looking for feedback and critiques of an idea. Universal basic income is an increasingly popular idea, but most agree that it would be terrifically expensive. Assuming that the goal of UBI is to ...
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1answer
134 views

Is there some background/explanation why the Fed discontinued publishing their M3 indicator, circa 2006?

As Wikipedia says and as it can be easily verified, since 2006, the Fed no longer publishes an M3 indicator (unlike the ECB which still hangs on to that notion). So is there some background or ...
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2answers
50 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-...
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1answer
36 views

Creation of Money - Hypothetical Situation II

Continuation off this line of questioning. If I issue an IOU, it would need to be fungible, transferrable, etc in order to be considered "money." Understood - My follow up questions are: Remaining ...
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3answers
72 views

Where is the money that was in the economy pre-lockdown? [closed]

Countries are in lockdown, companies have no customers and thus no income. They have to lay off staff which in turn means ex-staff have no income. Everyone simultaneously and quickly depletes any ...
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3answers
82 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. ...
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2answers
60 views

What is the Federal Reserve's “money printing” impact on inflation [closed]

In wake of Coronavirus, when the Fed announces it is printing \$2.2T, what is the impact on inflation? Does the M2 increase by \$2.2T? (Thus a 12.5% increase in inflation? That can't be right?) Is ...
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3answers
47 views

Why is the Dollar Index strong after the Fed dropped the Fed Fund Rate?

I have a query about the current forex market. In 16 March 2020, the US Federal Reserve Bank announces to cut the interest rate to 0%. This move supposedly weaken the Dollar Index, but why for a ...
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1answer
131 views

Can stimulus packages lead to hyperinflation?

I have a limited understanding of economy, however, I've been trying to catch up from various resources. Recently, the news are all about the enormous stimuli bills debated/implemented by governments ...
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1answer
81 views

Question about Federal reserve open market operations - reducing money supply

I'm trying to understand how open market operations work to reduce money supply. So the Federal Reserve sells bonds... when this happens, the bank balances of the bond-purchasers goes down... the ...
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0answers
17 views

How does the central bank's purchase of the domestic currency lead to an increase in the domestic interest rate?

Consider the following scenario: The Hong Kong Dollar has been pegged to the US Dollar since 1983. If, for example, the US tightens monetary policy by raising interest rates, this will cause ...
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20 views

What happens to Interest rate if the money supply is fixed?

With the increase in Money supply, the nominal interest rate tends to increase. But what happens if the supply of money is fixed? What happens to the Interest Rate?
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1answer
28 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 ...
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1answer
22 views

Exogenous variables and money

What are the exogenous variables that drive demand for and supply of money? Are there variables in common between the two? I think I'm getting caught up with interest rates, as adjusted by the Feds vs ...
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14 views

How would M2 and Velocity of M2 be affected if balance sheet expansion continues long-term?

Let’s assume that the Federal Reserve does NOT discontinue injecting liquidity into the Repo market but, instead, continues a long-term policy of continuous and regular liquidity injections. Let’s ...
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1answer
23 views

Any drawback from printing money to pay for national services such as the NHS? [duplicate]

Why can't we just print money to build national infrastructure services such as an additional hospital for the NHS? This would create growth, allowing more doctors and nurses to come through but more ...
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1answer
55 views

Does a negative interest decrease the money supply?

If there is less money, its value increases. There is less liquidity when there is less money. Does a negative interest decrease the money supply? Especially when people don't need money: they saved ...

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