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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59 views

Can a government or central bank work to reduce inflation without hiking interest rates and causing the currency to appreciate?

Since trying to lower inflation will have some undesirable consequences, such as currency appreciation, which hurts exports, should governments and central banks keep hands off on inflation? But ...
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105 views

Can expansionary monetary policies with debt creation be inflationary?

I have a theory that monetary expansion by debt creation (banks loan money into existance in exchange for public debt) never leads to inflation. On the over hand any expansion (goverment buys back it'...
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Demand-pull inflation intuition

According to the theory, monetary growth increases inflation. But how do companies know that there is more money in the economy now than before?
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2answers
3k views

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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1answer
50 views

Isn't money moving towards central bank in the long run?

Central banks typically pumps money into the system by : lending out to private banks buying govt bonds But in both these cases won't the central bank get back more money when it ends it's position (...
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1answer
4k views

How government borrowing from central bank increases money supply in economy?

Yes, public finance by government may lead to increase in money supply in economy. But, if govt borrows money from central bank, less amount of money is left with central bank to lend it to banks and ...
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0answers
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Money Demand on the 60's and 70's [closed]

i just maked a model about the money demand in USA on the between 1962 and 1979 and i just found that the money demand was positively influenced by the interest rate. I know i'm not given any details ...
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1answer
255 views

Who owns the federal reserve?

Does anyone know who actually owns the federal reserve? It's like a public private institution, who are the private owners, and who are the public owners?
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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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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 ...
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2answers
973 views

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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4answers
458 views

What are taxes for since law forbids printing of money?

This question bothers me for a long time: why government keeps up with the taxes instead of with printing money? This would decrease its operating costs, simplify law and generally raise comfort of ...
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1answer
104 views

Why do we need base money at all?

For example, we could imagine an arrangement like this: There are currently \$0 in the economy. A business takes out a \$50 loan. The bank sets there bank account to \$50 - \$50 debt = \$0 net. The ...
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515 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 ...
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2answers
80 views

How can economies grow if every account is perfectly balanced against others?

In an economy with finite actors, if every account is perfectly balanced against another account, how can the economy grow when new money enters? I am thinking of the following chain of events: The ...
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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 ...
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1answer
164 views

Is Iranian rial going to get boosted?

I was reading about the Iran's economy and Iranian rial. I have read the news regarding the lift of sanctions from Ira, which had allowed the purchase of Iranian rial in America. I was having query ...
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3answers
748 views

Why do increase in firms profit margins cause cost push inflation?

I read somewhere that this was the case. I get what profit margins and cost-push inflation are, but don't see how increase in marginal profit causes cost-push inflation? Also, how does increase in ...
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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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1answer
151 views

How does burning a huge amount of cash money affect the monetary supply? [duplicate]

I am not an economist by default. In other words, I am a newbie here. Assume there is an extremely rich man who withdraws an extremely huge amount of cash money. He then burns all of it. How does ...
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3k 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 ...
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3answers
197 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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1answer
32 views

What happens to the money that the government is in debt from?

Since nearly all countries are in debt except for four (http://www.therichest.com/rich-list/rich-countries/the-only-5-countries-in-the-world-living-debt-free/), where does all the money that the other ...
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1answer
156 views

Is Quantitative Easing an asset-swapping or money-printing exercise by the Federal Reserve?

Shortly after 2008, there were prominent commentators such as Jim Rogers who called Ben Bernanke an idiot and condemn him for printing money. However, there were also articles that suggest ...
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149 views

When the Fed increases the money supply, does any of the additional supply go directly to the government?

When a central bank increases the money supply, how much of it goes directly into the government purse? Say for example: The money supply is $150 The populace has $100 The government has $50. If the ...
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2answers
632 views

Exporting inflation

One explanation I have read for the resistance of the dollar to inflation is that it is "exported" meaning that excess dollars go abroad and foreign use of the dollar increases, thus preventing the ...
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Federal Reserve conditions [duplicate]

Does the Federal Reserve have conditions attached to the money that's created and distributed to major banks?
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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 ...
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5answers
964 views

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 ...
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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 ...
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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 ...
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1answer
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How could monetary policy be affected if cash “gifts” to consumers were more frequently used?

A few years ago in the US, everyone who filed taxes received a check for $1000. If this method of inflation was logistically more feasible, how could this be used in monetary policy, and what ...
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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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3answers
996 views

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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1answer
499 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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142 views

How would banking in UK change if minimum required capital to open own bank would be £100k instead of €5m?

DIRECTIVE 2013/36/EU Article 12 Initial capital Without prejudice to other general conditions laid down in national law, the competent authorities shall refuse authorisation to ...
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102 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 ...
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1answer
84 views

How would banking in EU change if taxpayers withdrew their support for Deposit Guarantee Scheme?

Disclaimer The question pertains mostly to EU but I believe counterparts to Deposits Guarantee Scheme exist world-wide. Assumption Let’s suppose that support for liberal ideas and free market rises ...
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1answer
123 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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4answers
524 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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3answers
622 views

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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3answers
212 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 ...
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4answers
8k 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 ...
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4answers
3k 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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1answer
121 views

Reactions of the Money Market

Here's the image of a money market with two different money supply and demand curves: Here are some questions regarding money market reactions. I'll always write my proposed reasoning underneath each ...
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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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315 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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1answer
202 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 ...
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1answer
59 views

How to determine the worth of a good

I've searched around the web for awhile now and I'm beginning to think this might be an unanswerable question. I want to know if there is a theoretical way to determine the worth of a particular good, ...
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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 ...