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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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3 votes
3 answers
278 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 ...
1 vote
1 answer
73 views

What are exported inflation and imported inflation?

I read in some articles that there are such notions as "exported inflation" and "imported inflation". But it was not written about in detail. What are exported inflation and ...
0 votes
1 answer
273 views

A hypothetical question on neutrality of money

Let's assume that we start with an economy producing two goods, A and B, with each priced $100. Each good is weighted using the same quantity, so CPI equals 100. Nominal wage is also 100 dollars. An ...
3 votes
2 answers
1k views

Why didn't M1 grow much during 1970s inflation?

One of the most widely cited reasons for the '70s stagflation was expansionary monetary policy employed by the central bank. Below is M1 during this time period (source), and it does not look like ...
-1 votes
1 answer
225 views

Why must goods in the country will be purchased with the entire money supply in the country?

In russian books it's written that there is balance between commodities and money. And this balance guarantees that all goods in the country will be purchased with the entire money supply in the ...
1 vote
1 answer
66 views

Bond market downturn - how does money supply change?

When people are pessimistic with bond-holding due to the bearish bond market, chances are high that they would change the ratio of portfolio (i.e., increase the ratio of money, decrease the ratio of ...
1 vote
1 answer
88 views

Bank loans are often offered as a mechanism of money creation--but how is money created long term?

I've been reading on money creation. Bank loans are often cited as a mechanism of money creation: working based on fractional reserves, banks issue loans to the public based on deposits, thereby "...
2 votes
1 answer
105 views

How much money is owed to the Fed?

The Fed maintains its target interest rates by "lending" money to commercial banks: When the actual federal funds rate is higher than the target, the Federal Reserve Bank of New York will ...
1 vote
2 answers
133 views

Where did the money supply go?

The money supply went from about \$4 trillion in 2020 to about $20 trillion today. Where did all that money go? When the money supply went from about \$1.4 trillion to about $1.7 trillion, I was ...
1 vote
2 answers
301 views

How does the central bank reduce money supply by selling bonds if the buyer of the bonds can use bonds as currency?

When the central bank wants to reduce the money supply, it can sell bonds. That way, the money supply reduces by the amount paid for the bonds. The buyer will have bonds instead of cash. The bonds can ...
0 votes
0 answers
21 views

Money supply question

If relative interest rates in US dollars compared to other countries currencies go up assuming everything else stays the same does this automatically decrease the money supply? At first you would ...
0 votes
2 answers
204 views

Is new money created when banks buy Treasury Bonds in primary auction?

From my understanding of the current monetary system when a bank issues a loan it is effectively creating money for the receiver of the loan i.e Mortgage. This increases the M1, M2, M3 numbers of the ...
0 votes
1 answer
190 views

Could Gaza have been "one of the wealthiest states on the Mediterranean"?

According to this transcript, (I don't have access to the original interview), Robert Kennedy told Krystal Ball: The international aid agencies have given Hamas, have given Gaza more than 10 times ...
-4 votes
1 answer
335 views

Money creation - why do we need deposits and why do banks give out money? [duplicate]

Currently studying elementary economics but there's this one concept that I'm struggling to wrap my head around at the moment: money creation. The way I understand it, banks can create money "out ...
0 votes
2 answers
66 views

Good books on money creation and monetary theory?

I just finished reading "Where does money come from?" (Ryan-Collins) on how commercial banks create the bulk of the money supply, and I am still hungry for more material that will help me ...
1 vote
0 answers
53 views

Why would bank runs lead to a decrease of the total quantity of money supply M1?

It‘s specifically about the German banking crisis of 1931. I get how the banks increasing their reserves and cutting their loans (starting 1930) would cause money contraction (at least of M1). Doesn‘t ...
4 votes
3 answers
914 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 ...
0 votes
0 answers
12 views

Design of a money skew economy (target: museums/libraries loan rotation sharing)

I was thinking about libraries and museums, and began wondering how such institutions might institute what I would describe as a "money skew economy." Skew in the math sense, of two lines ...
1 vote
2 answers
380 views

Loans create deposits, banks "are not reserve constrained"?

It is often said that banks are not "reserve constrained" when it comes to lending, and that loans create deposits (and therefore commercial banks create money). I have some doubts about the ...
0 votes
0 answers
27 views

Is there a global flow of income?

If I understand the circular flow of income correctly, we can visualize money moving around the country in exchange for goods and services. Sources of money are the central bank (MB) and the financial ...
0 votes
2 answers
586 views

How do bonds & shares relate to the money supply?

Non-eocnomist here. I'm trying to understand how money works, and what "money supply" means. I understand about how banks take deposits and lend them out, turning short term loans (the ...
1 vote
1 answer
677 views

Where is the central bank in the circular flow of income?

In the five-sector breakdown of the circular flow of income (below), we account for leakages and injections from the financial, government and overseas sectors. My understanding is that the government ...
1 vote
0 answers
36 views

How do write downs impact the money supply?

This is a bit of a mix of micro and macroeconomics, but someone asked me how write-downs would impact the money supply this week. I didn't have a good answer. Usually, this isn't that big of a deal. ...
2 votes
1 answer
58 views

How would a Central Bank Digital Currency be different from a private bank deposit?

Both are digital, both can be transferred digital, and both are denominated in the same currency. A CBDC is "a direct liability of the central bank, rather than of private banks or coin issuers&...
6 votes
2 answers
728 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 (...
0 votes
1 answer
61 views

What's exactly the T/Y value in the Quantity Theory of money simplified equation: MV=PT or MV=PY?

I understood the basic fundamental principle of the theory, that all things being equal, a change in the money supply affects price level. Yet, now I am trying to understand this statement ‘ The QTM ...
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 ...
1 vote
1 answer
44 views

If the interest rate is increased to limit inflation, doesn't that increase the money supply?

If the interest rate is increased to limit inflation, doesn't that increase the money supply? Because one year later, 5% of the total bond will need to be created and put into circulation. This, in ...
0 votes
1 answer
74 views

Large quantity sale of CNY at current currency value

Some company wants to sell large quantity of CNY and buy USD on Forex. Let current currency value is 1 CNY = 0.14 USD at the time moment on Forex. When company sell large quantity of CNY, money supply ...
2 votes
1 answer
219 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 ...
5 votes
3 answers
2k views

Is it true that the Federal Reserve is not federal and has no reserves?

The Money Masters is a 1996 documentary film that discusses the concepts of money, debt, taxes, and describes their development from biblical times onward. Its main points were summarized by a ...
1 vote
1 answer
137 views

What happens to the money supply when a bank is allowed to go bust

I'd like to ask this question in two different ways just to help clarify the issues. Scenario 1. There is no deposit insurance and the central bank take no special action in response to the bank ...
12 votes
8 answers
11k views

What would be the effects of an expiration date on currency?

Let's say we introduce a monetary system where each piece of money is printed with an expiration date - a year, perhaps. I'm imagining something rather different from inflation (although I do not ...
1 vote
1 answer
334 views

Chain effects when Money Demand is greater than Money Supply

Here is an example graph of Money Market Equilibrium The chain effects when interest rate is 8% are : Excess Demand for Money => So, People would sell Bonds => Bond Prices goes Down => ...
1 vote
3 answers
219 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 ...
27 votes
13 answers
11k views

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 ...
1 vote
2 answers
310 views

How can Real GDP increase while Money Supply remains fixed?

I'm studying the Money Market Graph with it's Money Demand and Money Supply curves. In the classical model they teach the Money Demand curve as sloping down to the right while the Money Supply curve ...
-2 votes
1 answer
69 views

Does demand decrease when supply increases? [closed]

I’ve been reading about supply and demand and I don’t know if I’m misinterpreting, but it seems like what they’re saying is that when the quantity supplied of something increases, the quantity ...
7 votes
1 answer
462 views

What is the connection between the money market and loanable funds market?

I am studying economics with Khan Academy and came across these 2 articles on The money market and The loanable funds market. (LF = Loanable funds) Now, clearly these 2 systems must be related, right? ...
1 vote
1 answer
76 views

How exactly is money supply related to the price of goods and services?

I keep hearing that prices of goods and services are based on the money supply, so, for example, if there was only one good or service in the entire economy, that good or service would be worth the ...
2 votes
1 answer
65 views

Are there valid concerns of USD hyperinflation post stimulus?

This article The Dollar Endgame is probably one of many doomsday predictions that exist, but there were a few points mentioned that were new to me and seemed scary: "Debt virtually always has a ...
0 votes
2 answers
82 views

How can debt be larger than gdp? [closed]

government is taking debt because they spend it all at once and pay it over time so if you spend all at once there will be increase in gdp(multiple increase in gdp as money changes hands multiple ...
1 vote
3 answers
270 views

long run growth of money supply

I am trying to understand how the money supply (bank deposits + currency) grows over time (in the long run). start of edits I am not asking 'how do we know it grows?' or other high-level observations ...
2 votes
1 answer
70 views

What are these yearly spikes in the Russian Money Supply?

During a school project, I realized there are these consistent annual spikes in the Russian money supply chart. Any one know what these are? https://tradingeconomics.com/russia/money-supply-m2
-1 votes
2 answers
86 views

What have banks mostly done with their "excess reserves" obtained during QE

I put excess reserves in quotes because I know that in many countries there are no reserve requirements, so what I really mean by "excess reserves" is reserves in excess of what banks like ...
0 votes
2 answers
111 views

Question about quantity theory of money

I have a question regarding the infographic above. It says demand for money rises when money supply is low and demand for money reduces when money supply is high. Why exactly is that the case? Why ...
0 votes
1 answer
66 views

Is there any graph that shows how the gold and silver content decreased in roman coins?

I am looking for a graph of at least a table with data that would allow me to make a graph, showing how the gold/silver content was slowly removed from roman coins due to debasement of the currency.
-1 votes
1 answer
116 views

How does lending “create” money? [duplicate]

I keep hearing that when banks loan money, it creates money and increases the money supply. But this confuses me. Wouldn’t the money have to have already been created in order for them to lend it in ...
0 votes
0 answers
49 views

How do Canadian banks manage their mortgage portfolio?

Firstly, I've read on CMHC website that only 30% of mortgages in Canada are securitized.50% of mortgages are on banks balanced sheet. And there is no reserve requirement in Canada (although there is ...
0 votes
1 answer
13 views

Q question on the components of the $M_1$ component of money supply

The $M_1$ component of the money supply is given by the sum of the value of money held by the public+the demand deposits in the country + other deposits(money of other government institutions held by ...

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