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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16
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4answers
4k views

Why is fractional reserve banking allowed?

I learned about banks' fractional reserves and that revolted me. How is that not considered to be fraud? The idea doesn't seem too sophisticated, on the contrary, it sounds very simple: the bank ...
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5answers
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Implications of abolishing Fractional Reserve Banking on mortgages and interest rates

Suppose for a moment that someone with legislative power decides to abolish Fractional Reserve Banking and passes a law that forces banks to only lend the money they own, that is M0. What would be the ...
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Destroying the dollar

Let's destroy the USD dollar: I am the government of a small, economically and geopolitically unimportant country that has its own currency and a local central bank. I order the local central bank (at ...
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5answers
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When a stock market crashes, how does money just disappear?

I looked it up online (here), but I find it hard to believe that money literally "disappears". For example, if I buy 10 stocks of a toaster company for \$100 per share, and then the stock value drops ...
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3answers
923 views

What is the calculable effect of counterfeiting on an economy?

I'm curious whether one can numerically calculate the effect that counterfeiting has on an economy. As I understand it, counterfeiting essentially amounts to theft of the wealth of everybody holding ...
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8answers
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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 ...
8
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3answers
603 views

Inflation, cause or result of monetary emission?

The argentine economist Fernanda Vallejos, while trying to protect the government because of the inflation, the following: Inflation is not the result but the cause of monetary emission. As there'...
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2answers
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What is the advantage and disadvantage to have a high value of USD for USA?

What is the advantage and disadvantage to have a high value of USD for USA? China and Japan always want to keep their currency low as oppose to USA.
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2answers
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How and when is M0 money created?

The Federal Reserve Coin and Currency Service Website describes their currency order process thus: The 7.2 billion notes included in the FY 2015 order reflect the Board’s estimate of net demand for ...
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1answer
237 views

Restricting “money creation” to the central bank [duplicate]

Iceland is considering removing "money creation" from commercial banks. [Despite the date of the article, I don't think this is a joke, as it has been picked up in other places since without anyone ...
8
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3answers
339 views

What determines the exchange rate of two fiat currencies if the supply of each is known?

In this blog post, economist Steve Landsburg posed a question about the value of Bitcoin which he didn't know the answer to. Imagine a future in which Bitcoins (or some other non-governmental ...
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3answers
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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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5answers
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How is the interest on fractional reserve money creation paid?

In fractional reserve banking commercial banks create money when they make loans. When these loans are paid back the account is zeroed, the created money disappears, but the bank is still entitled ...
7
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4answers
563 views

How is money created on net?

I have the impression that everyone has more net money than in the past. By net money I means cash + money lent to others - money borrowed from others. If this is true, where does the extra net money ...
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What prevents a bank from simply going into their computer system and adding some zeros to their bank account? [duplicate]

This question has been bothering me for a long time and I’m hoping that someone here can help to answer it. I will use Greece as an example, but my question could really be applied to any country or ...
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3answers
227 views

Fractional reserve banking and the value of someone else's currency

Suppose there are two countries: $A$ and $B$. $A$ is a large, stable, democratic country with its own currency, the dollar. $B$ does not have its own currency. All prices and financial transactions in ...
6
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1answer
114 views

Why are banks allowed to resell mortgages?

It just seems like a way to get around money creation limits imposed by liquidity requirements. For example if a bank creates new money by extending new morgages then securitizes them and resells them,...
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2answers
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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, ...
6
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4answers
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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 ...
6
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1answer
597 views

Implications of declining money velocity

In the United States, the velocity of both the M1 and M2 money supplies has been declining for over a decade. The decline in the velocity of M1 could be explained by the shift away from cash to cards ...
6
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2answers
193 views

How might the Swiss currency floor be unwound?

The Swiss National Bank has been enforcing a currency floor since 2011, not allowing the EUR/CHF rate to drop below 1.20 by buying unlimited amounts of foreign currency as needed with newly created ...
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6answers
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Does the money's “Store of value” function actually exists?

I'm aware of the following four functions of money: Medium of exchange. Measure of value (in dollars, pounds, etc.) Standard for exchanging goods (guaranteed by the Fed) A Store of value (as an asset)...
5
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1answer
90 views

What impact did monetary policy actions taken during the Great Recession (2007-09) have on U.S. economic performance?

What impact did monetary policy actions taken during the Great Recession (2007-09) have on U.S. economic performance? Quantitative easing and unconventional policy actions such as asset purchases and ...
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2answers
172 views

Unlimited supply of national currency?

I was reading this article about Denmark central bank defending its currency peg: http://www.bloomberg.com/news/2015-01-22/denmark-cuts-key-deposit-rate-to-minus-0-35-to-drive-down-krone.html In it ...
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1answer
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Are prepaid cards, and gift cards considered a form of money?

Are the followings considered a form of money prepaid (debit) cards gift cards (both bank-issued such as American Express gift cards, and store-issued such as Walmart gift cards) ? Are their ...
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1answer
68 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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2answers
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Gold coins as currency?

My question is about gold standard. But not the version I always see mentioned (trading bills for gold at a set price). I mean having gold coins in circulation. For example, new currency consists ...
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3answers
517 views

Is a shrinking money supply environment painful for an economy?

During the great depression the money supply in the US fell by about a third. It is my suspicion that any economy with a falling money supply will generally be doing badly but of course I could be ...
4
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1answer
277 views

What if only the government could create money? [duplicate]

If I understand correctly, under the dominant system of fractional reserve banking, many (all?) private banks can create money by lending. See, for example, Implications of abolishing Fractional ...
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4answers
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How does the economy “detect” if money is removed from circulation?

It is well known that there is a strong connection between introducing more money into an economy and inflation, as well as removing money and deflation. However, how does the economy as a whole "...
4
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1answer
129 views

Could money be tied to a basic good like the gold standard?

I don't have a formal education in economics but I had an idea for creating a better and fairer currency. So the gold standard ties gold to the dollar. Gold is usually used in luxury items like ...
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2answers
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What effect would raising reserve requirements while printing money have?

It is generally accepted, that printing money will be inflationary, as it increases the money supply without a corresponding real growth of the economy. At the same time, if the central bank ...
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1answer
92 views

When and to what extent should the money supply of a pegged currency be included in the “parent” currency?

For example, the Manx pound is in a de facto currency union with GBP. The Isle of Man Bank chooses to back IMP one-to-one with Bank of England notes, but is not legally required to do so. At one-to-...
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0answers
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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 ...
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3answers
426 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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3answers
435 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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2answers
254 views

Why has M1 grown a lot faster than M3 after the financial crisis?

While the fed has printed a lot of money the last decade and the M1 money quantity growth rate has gone up significantly (red), the M3 growth rate (blue) is almost exactly the same as before the ...
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2answers
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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 ...
3
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3answers
259 views

By what steps and contracts does new money enter the economic system?

Like many noneconomists who read about economic history and finance, I always remain somewhat baffled by the opaque generation of currency under the federal reserve system. My understanding is that ...
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2answers
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What is “inter-temporal smoothing”?

In a recent article about the OECD latest report it reads as follows: Mr White said QE and easy money policies by the US Federal Reserve and its peers have had the effect of bringing spending ...
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2answers
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Why is M0 higher than M1?

In my understanding, M2 includes M1 and M1 include M0. However, I checked the money supply here and used the "Compare" function to compare the money supply of m0 with money supply of m1, and found ...
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2answers
106 views

Where did the Greek cash go?

Apparently (1, 2) Greece is running out of cash right now. I am wondering where the cash went. One option that I can image is people withdrawing funds and taking them out of the country but this ...
3
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3answers
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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
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Why is the money supply perfectly inelastic?

From my notes: We analyze the determination of the interest rate using a supply/demand model relating the interest rate (price of money) to the quantity of money. Since we assume: 1) no excess ...
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2answers
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How do excessive foreign reserves cause inflation?

I have studied that accumulation of foreign reserve has the potential to raise inflation levels in economy as the money base increases (= domestic currency + foreign reserve increases) and if it ...
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2answers
2k views

Money supply control vs. interest rate control

In a macroeconomics book I'm reading, the author talks about money supply control vs. interest rate control as two different approaches in monetary policy of a central bank. With the goal of price ...
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Is increasing the money supply possible with a gold standard? How about controlling interest rates?

I understand that under a fiat currency, the government can buy securities on the open market to increase the money supply, and decrease interest rates. This monetary policy is possible to help ...
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2answers
60 views

Quantity theory of money: microfoundations

The quantity theory of money states the price level is proportional to the amount of money in circulation. That is, if the quantity of money increases by some factor $k$, the price level will increase ...
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4answers
211 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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1answer
532 views

Is money lent by central banks to private banks counted in MB or M1?

If a bank borrow money from a central bank but keeps it as a reserve instead of lending it to someone else, is it counted in the monetary base (MB) or money supply measure M1, using US definitions ? ...

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