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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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How exactly do Participatory Notes induce volatility into the economy?

I was reading up on participatory notes. Wikipedia defines these as "instruments issued by registered foreign institutional investors (FII) to overseas investors, who wish to invest in the Indian ...
Jay's user avatar
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7k 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 ...
Taladris's user avatar
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3 votes
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75 views

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,...
z.li's user avatar
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3 votes
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Using US foreign tax policy to offset a raise in interest rates

I am an amateur economist at best, more a person with an economic BS looking to explore data science (I will be using python). I have a theory that I want opinion on that will allow the Fed to raise ...
lost's user avatar
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3 votes
2 answers
2k views

How does reverse repo rate affect money supply?

What is the impact of increase/ decrease of reverse repo rate on Monetary Base, Money multiplier and therefore, overall money supply?
Yoda's user avatar
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2 votes
0 answers
29 views

How £800,000 of specie is above what the circulation can employ?

I'm reading this (clicking it will download a PDF, so, do as you find good) analysis of Adam Smith's theory of banking and money. On page 13, the author writes: For example, Smith (293) says that if ...
ConGovDeIn's user avatar
2 votes
0 answers
21 views

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'...
An old man in the sea.'s user avatar
2 votes
0 answers
243 views

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 ...
Thomas's user avatar
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2 votes
0 answers
265 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 = $ ...
zer0hedge's user avatar
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2 votes
0 answers
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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 ...
Rustov's user avatar
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2 votes
0 answers
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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 ...
Robin311's user avatar
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0 answers
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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 ...
Brandon Frenchak's user avatar
2 votes
0 answers
60 views

Why did the rate of money supply growth increase 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 ...
Ulysses Li's user avatar
2 votes
0 answers
42 views

When in the history the governments issued non-cash money first?

I understand that the Federal Reserve is issuing money in the form of deposits. Those deposits "are not cash but they are money: they can be used for payment (at which point they become somebody else'...
Joe Jobs's user avatar
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How much money is needed when creating a new hypotethical country?

If a new country is to come to existence as a thought experiment, what determines the amount of money that would be needed to bootstrap economic activities? This question is more of a prodding ...
Finlay Weber's user avatar
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 ...
Iris L's user avatar
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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. ...
turbonate's user avatar
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 "...
eriophora's user avatar
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34 views

Why isn't the money demand function called the real money balances demand function?

M=Money supply P=Price k= How much money people wish to hold for each dollar of income = exogenous. Y = output M/P= real money balances Money demand function: (M/P)^d = kY Why isn't the money demand ...
povt's user avatar
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0 answers
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Question about money supply and the nominal interest rate

How does an increase in money supply, due to a decrease in the REPO rate, decrease the nominal interest rate? If an increase in money supply means more inflation, how doesn't inflation lead to ...
okman's user avatar
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1 vote
0 answers
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What happens to Deposits when purchasing stock shares or money market fund shares?

I'm trying to understand the flow of money into the shadow banking sector, e.g. what happens when deposits are transferred to either a brokerage, or a money market mutual fund (MMMF), and specifically ...
Solaxun's user avatar
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1 vote
0 answers
23 views

Is it accurate to say reverse repo is 'conflicting' with monetary policy?

As seen in the chart, historically, reverse repo levels have been fairly small or at most, a few hundred billion dollars: Now into the USD trillion handle, it's a more prominent fixture of the money ...
Arash Howaida's user avatar
1 vote
0 answers
23 views

Money-market model: Income rises, bond prices fall. But if income rises, saving increases — in bonds. So why does rising income lower bond prices?

According to the money market model that determines the equilibrium interest rate at which the demand for money in the economy equals the supply of money: when the money demand curve shifts right for ...
Oikosmonaut's user avatar
1 vote
0 answers
42 views

Where is all the cash in an economy where saving is high?

Where is all the cash in an economy where saving is high, today inflation in Argentina hit a monthly rate for march of ~7.6%, what this means for me is that I try to move away from the peso as soon as ...
EmmanuelMess's user avatar
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 ...
antifreeze's user avatar
1 vote
0 answers
29 views

optimal lending levels

Many ratios are mentioned to allude to what caps the amount of money a bank could lend. But none is really convincing. Usually debt ratio and solvability (Basel) ratio are mentioned. Elsewhere there ...
Averroes's user avatar
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0 answers
21 views

Is There an rNPV Model Relating Money Supply, Total Wealth and Money Velocity?

It seems sensible that the supply of constant-value units of fiat money should roughly correspond to the total wealth of the jurisdiction's economy, in the same sense that an on-demand gold ...
James Bowery's user avatar
1 vote
0 answers
48 views

How the Fed and Treasury coordinate on liquidity management

On top of the Fed's USD120bn monthly treasury/MBS purchases, the drawdown in Treasury issuance over the last year has also added over USD1tr to the system. The premise is, faced with drawn-out debt ...
Arash Howaida's user avatar
1 vote
0 answers
56 views

How do currency boards maintain a 100% foreign reserve backing in the presence of fractional reserve banking?

Under a currency board system, money in circulation has to be 100% backed by foreign reserves. Suppose the domestic currency (A\$) is 100% backed by a foreign currency (B\$), with a fixed 1:1 ratio. ...
Flux's user avatar
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1 vote
0 answers
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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 ...
Mike's user avatar
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1 vote
0 answers
31 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 ...
Luke's user avatar
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1 vote
0 answers
77 views

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 (...
Philip Hartfield's user avatar
1 vote
0 answers
27 views

Which of the possible monetary policy channels is there empirical evidence for?

There are many possible monetary policy channels. These channels are the different ways that changes in the Fed's interest rates can affect the economy: exchange rate depreciations, business ...
Fix.B.'s user avatar
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1 vote
0 answers
45 views

Why is Double-entry Bookkeeping always equal? (Part 2)

In this question, with answer here Destroying the Dollarhypothetically a hack is used to trick whatever programme is used to make sure accounts balance, so say a transfer is made from Bank manager A ...
Sunhwa's user avatar
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1 vote
0 answers
182 views

How does a country increases or decreases it currency value (exchange rate) against other nations currency?

I want to know how a country, Mexico for instance, keeps the exchange rate higher or lower against other nations currency, USD, EUR, JPY. How does the value of a nation currency is valued against ...
echavez's user avatar
  • 111
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 => ...
Rakesh Poddar's user avatar
1 vote
1 answer
128 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 ...
Julius Baer's user avatar
1 vote
1 answer
198 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), ...
curiousTrader's user avatar
1 vote
2 answers
300 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 ...
Flux's user avatar
  • 553
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 ...
Erin Brennan's user avatar
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 ...
G. Putnam's user avatar
  • 101
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 ...
user avatar
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 ...
Laurent Tremblay Mompart's user avatar
0 votes
0 answers
59 views

Question about the quantity theory of money

M = Money supply V = Velocity = Number of times the average bill changes hands in a time period. P = Price Y = Output T = Transactions Quantity equation M * V = P * Y, M * V = P * T Why do we have MV ...
povt's user avatar
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0 votes
0 answers
56 views

Demand deposits in the US between 2002-2008 - why no growth?

I just happened to stumble upon the following graph of total demand deposits in the US. I was very surprised to see essentially no growth between 2002 and 2008. I had heard that in the same period in ...
Mick's user avatar
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0 votes
0 answers
32 views

Why does a balance of payment deficit lead to an outflow of gold under a pre-WW1 gold standard?

I am trying to understand how gold flows "out" of the country during a BOP deficit and why this results in a contraction of the domestic money supply. I am not sure if the following ...
HHQ's user avatar
  • 51
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 ...
Brendan's user avatar
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0 votes
0 answers
58 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 ...
Sam's user avatar
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0 votes
0 answers
45 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 ...
Arash Howaida's user avatar
0 votes
0 answers
32 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 ...
Flux's user avatar
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