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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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2 votes
1 answer
155 views

What is the upper limit of circulating money on earth?

I've come up with this question while discussing the topic of customer-perceived value with coworker. Is there a theoretical upper limit to all circulating money in this world? To avoid inflation ...
17 votes
5 answers
2k views

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 ...
3 votes
2 answers
105 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 ...
0 votes
1 answer
133 views

Can the Fed raise the M1 money supply permanently w/o helicopter money?

I just read parts of an introductory economics book. I read about the monetary system in the U.S. and came up with the following question: Can the Fed raise the M1 money supply permanently without ...
0 votes
1 answer
1k views

Velocity of M1 versus M2 money

According to Pablo Kurlat's textbook on Macroeconomics, the graph of Ch 13 compares the velocity of M1 and M2 over the years. I don't understand why M1 velocity exceeds M2 even though M2 includes more ...
0 votes
1 answer
43 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 ...
0 votes
1 answer
82 views

Can government just print a little of money to purchase some foreign resources?

We know that government shouldn't just print money, because it's gonna be bad. Bad what if to do it in a small scale, just a little, for example to hire some scientist (probably nothing gonna happen ...
2 votes
3 answers
632 views

LM curve: How interest rate is changing without OMOs by the central bank?

The following is the gist from chapters - 3, 4 & 5 dealing with IS-LM model from Macroeconomics, Blanchard & Johnson, 6th edition. Equilibrium in the financial market implies an increase in ...
7 votes
1 answer
777 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 ...
2 votes
1 answer
52 views

The Fed Lowered Interest Rates, Are they going to buy Bonds?

I originally asked this question on personal finance/money because I didn't know that this exchange site existed. link to same question at person finance/money. Someone on that site mentioned that it ...
1 vote
1 answer
89 views

Why aren't open market operations a zero sum transaction?

I know that when the Federal Reserve buys Treasury bonds it increases the money supply, but I don't understand the process behind it. The model that I have given below (which is my best understanding ...
3 votes
2 answers
607 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 ...
2 votes
1 answer
223 views

Why is the cash in circulation on the rise in rich countries?

The amount of cash in circulation is on the rise in rich countries (US, EU, etc; except the cashless economy, Sweden). In the digital era, isn't this phenomenon contradictional? For example, here's ...
3 votes
0 answers
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 ...
0 votes
1 answer
796 views

Quantity theory of money

Suppose the velocity of circulation (V) is constant. Annual growth rate of real GDP is 5%. The money supply grows by 14% per year. Use the quantity theory of money to calculate the inflation rate. My ...
-1 votes
1 answer
82 views

How do people check or trust that central bank is not cheating? [closed]

How people can be sure that somebody, cooperating with central bank (or working in it), is not creating money in digital or paper form for themself, so that nobody else notices it?
2 votes
3 answers
246 views

How important are capital requirements for controlling broad money supply?

Interestingly, the Bank of England (BoE) is one of the few central banks that does not have reserve requirements. Canada, the UK, New Zealand, Australia, Sweden and Hong Kong have no reserve ...
1 vote
0 answers
39 views

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 ...
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 ...
2 votes
2 answers
639 views

What happens if money supply grows more slowly than inflation?

I'm thinking the case of Argentina. In 2016, prices raised about 40% but according to the central bank of Argentina, money supply grew only 30%. Is this going to have an effect in 2017? What could we ...
5 votes
1 answer
120 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 ...
0 votes
1 answer
64 views

The value of money in a model economy. Has this been addressed?

Consider the following question: "Given a simplified economy which produce and trade some products A,B,C etc... with N agents and a total money supply of M. What will be the price of A, B, C as ...
-1 votes
1 answer
151 views

Would taxing money owned (as a share of purchasing power) be a better form of taxation?

Consider a nation whose money is entirely digital (like Bitcoin), but centralized (unlike Bitcoin). Furthermore, the total money supply is fixed, i.e. money cannot be created nor destroyed. To be ...
0 votes
1 answer
46 views

Is it true that when the overall money supply decreases, that the demand for money decreases and the demand for bonds and securities both increase?

Is it true that when the overall money supply decreases, that the demand for money decreases and the demand for bonds and securities both increase? I understand that to increase the money supply, the ...
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 ...
6 votes
1 answer
254 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,...
1 vote
2 answers
98 views

Why did it take so much QE by the ECB to raise the Eurozone inflation to 2%?

From 2015 to 2018 the ECB increased the money supply by around 20% (around 6% y/y), with a GDP increase rate under 1%. Yet the inflation rate remained under 2%. A back-of-the-envelope calculation ...
0 votes
1 answer
258 views

Nominal vs real growth of monetary base

Can someone clarify the difference between nominal and real growth of monetary base? I believe it is the policy of some central banks to target for example 0% nominal growth in the monetary base. What ...
3 votes
4 answers
309 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 ...
3 votes
3 answers
3k views

What is the effect of Quantitative Easing on the US budget deficit?

Is the deficit getting larger because of QE?
2 votes
4 answers
1k views

The sequence of Money Supply - Interest Rate

Until now I've learned that the Fed controls the interest rates and that affects the money supply. For instance, The Fed increases Interest Rate ----> makes firms/households reluctant to borrow and ...
2 votes
2 answers
1k views

interest rate and money supply

When the interest rate increases, I learned that money supply decreases because people put their currency back in banks in forms of assets and tend to save more, spend less. However, money supply ...
2 votes
1 answer
255 views

Wealth Creation: Where does the money come from?

I'm trying to better understand wealth creation– let's use trade as an example. I've bought a cup for \$2 and sold it for \$10. We've "created some new wealth" there– but without a net increase in ...
0 votes
2 answers
253 views

What does it mean to "print money"?

In my intro macroeconomics course, my professor tried to emphasize that the money supply changes ONLY by increasing or decreasing lending activity. However, I feel like he was trying to focus on ...
-1 votes
2 answers
174 views

Why doesn't the central bank extend loans directly?

I've been thinking about the credit theory of money lately and how it creates money. Since Banks look for sufficient reserves after extending a loan, and since the central bank always loans out money ...
-1 votes
1 answer
65 views

Why don't we mint more m0 instead of creating m1 through fractional reserve banking?

From what I understand, m1 money is just as liquid as m0 since an individual can withdraw it from the bank at any time and in any quantity (up to the amount (s)he deposited). Because of this I don't ...
1 vote
4 answers
187 views

Understanding interest rates

When a central bank 'pays' interest rate X / year, what does it mean exactly? Is that pure money printing? Where does that money (interest rate) come from? does it increase the debt of the country? A ...
-1 votes
1 answer
88 views

Cons of printing more money but not injecting in the system directly

So I don't know if this might be the right place, if it isn't I'd appreciate if anyone can link me to the right place. Anyways here is the question. I've read up on what are the cons of printing more ...
2 votes
1 answer
85 views

Why hyper-inflation?

I understand the $MV=PQ$ identity. I also understand the benefit for the government in some cases to having non increasing over time (even if high) values of $\Delta P$ (stealth tax & seigneur-age ...
2 votes
1 answer
52 views

How does the money supply grow in the long term?

For inflation to happen at roughly 2%/yr and for people to trade the same (or higher) volumes of goods, people must be trading more money. For such a trend to exist in the long term, there must be ...
0 votes
3 answers
54 views

Will periodical increasing and decreasing cryptocurrency supply peg cryptocurrency to dollar effectivelly?

As far as I understand, in order to make cryptocurrency pegged to USD we need somebody to take the risks of exchange rates. So, if ratio CRYPTO to USD is at a given time 1CRYPTO:1,1 USD, then we ...
3 votes
3 answers
320 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 ...
0 votes
2 answers
53 views

What would be the effect on the economy if the United States legalized counterfeiting?

If today the United States legalized counterfeiting, what would be the effect on the economy? The counterfeit must look authentic to be legal, thus requiring some skill.
-1 votes
1 answer
70 views

Question on money supply related to new crypto project

Following questions are related to a crypto project I am working on and proper answers are of utmost importance to this concept's development. I unfortunately lack expert knowledge about money supply ...
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 (...
3 votes
2 answers
4k views

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 ...
-1 votes
1 answer
787 views

How does a decrease in money supply affect price levels and Real GDP in the short run?

Specifically, when a short run AS curve is positive, how does a decrease in money supply affect price levels and Real GDP in the short run? Thank you!
2 votes
1 answer
117 views

What is the actual numerical value of the velocity of money?

All the discussions of the velocity of money that I've come across (e.g. here, here, and here) only display relative changes in the velocity of the money (e.g. by normalizing it by an unspecified ...
0 votes
1 answer
57 views

Can the amount of loans and deposits in entire banking system differ significantly?

Can the amount of loans and deposits in entire banking system differ significantly? When regarding the entire banking system, what factors impact the loans to deposits ratio? Is it roughly constant ...
2 votes
1 answer
68 views

Why does changing the value a currency help/hurt exports if sellers can just inflate/deflate prices to match the change?

1) I make widgets and sell them for $10. 2) The government reduces the value of my currency by 10%. 3) The market value of my widgets is the same as before, so I raise my prices to $11 and I can ...

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