Skip to main content
44 votes
Accepted

If no one knew about inflation, would inflation take place?

In this case, I think it is best explained without any economics jargon. If your thought experiment is taken to the extreme and no one knows about the money, it would literally imply that the money ...
AKdemy's user avatar
  • 4,122
27 votes

Why do banks take deposits if they do not need them to make loans?

I think there are a few separate issues here. First, semantics: if an institute doesn't let you deposit money into your account, I think we'd be hard-pressed to call it a "bank". This really ...
MichaelS's user avatar
  • 395
23 votes

If no one knew about inflation, would inflation take place?

Yes and there is a real-world historical example. Inflation is the term given to a natural phenomena where an overabundance of resources in human societies leads to the devaluation of such a resource ...
slebetman's user avatar
  • 331
14 votes

Is the Federal Reserve issuing money in a fair way?

Normative questions require a standard of fairness in order to then be analyzed and answered with some degree of "objectiveness" so that the answer is not just a declaration of philosophical-...
Alecos Papadopoulos's user avatar
14 votes

Why doesn't the government create money, spend it for free without interest, and recollect it with taxes?

Why doesn't the government create money, spend it for free without interest, and recollect it with taxes, you ask. Well, it does. That's exactly what public investment & spending, and the taxation ...
410 gone's user avatar
  • 8,168
13 votes

When a stock market crashes, how does money just disappear?

Stocks are not money. The valuation of a company - the market captialisation - is the number of shares multiplied by the share price. The share price is the price people are willing to trade at ...
paj28's user avatar
  • 928
13 votes
Accepted

Why is money in circulation a liability of the central bank?

Balance sheets always balance, so assets equal liabilities. Imagine a commercial bank goes to the central bank and wants cash. The central bank provides the cash, but asks for some of the commercial ...
M3RS's user avatar
  • 1,087
9 votes
Accepted

Is the Federal Reserve issuing money in a fair way?

The Fed introduces money in the economy through the banks via the mechanism of fractional-reserve banking, as you mentioned in your article. This means the Fed is then allowing the banks to provide ...
JoaoBotelho's user avatar
  • 2,155
8 votes

Why is the money supply perfectly inelastic?

The Fed controls the nominal money supply as they are the only ones who can add or remove money from the economy by printing it. Real money supply is only affected by increases or decreases in ...
TheSaint321's user avatar
8 votes

Why are there (still) coins?

In 2013 researchers at the Federal Reserve Board published a paper {link} considering the costs and benefits of replacing \$1 bills with \$ coins. Here are the takeaways from their executive summary: ...
Ubiquitous's user avatar
  • 16.9k
8 votes

Why do banks take deposits if they do not need them to make loans?

This isn't the first time I've seen people claim that this Bank of England article says banks don't need to take deposits, but in fact the article actually says the opposite. In order to make loans ...
Ross Ridge's user avatar
8 votes
Accepted

Why does the inflation not follow the money supply?

This is because classical economic theory absolutely does not say that: inflation occurs when the money supply is increased faster than the economic growth. Even in most basic 101 models inflation ...
1muflon1's user avatar
  • 56.4k
7 votes

What are taxes for since law forbids printing of money?

"Why I don't hear nobody speaking about such idea?" Because historical experience says it won't work. By printing money instead of collecting taxes, what increases is the nominal disposable income....
Alecos Papadopoulos's user avatar
7 votes

How can the stock market keep growing indefinitely?

As mentioned in the other answer, the amount of money does not have to correspond to the total value of all assets in the economy. However, there is some correspondence that is not mentioned in the ...
1muflon1's user avatar
  • 56.4k
7 votes
Accepted

What would monetarists do when interest rates approach zero and become ineffective?

An excellent overview of not just monetarist view on this issue but all other mainstream views on monetary policy at zero lower bound (ZLB) can be found in Ullersma (2002) The Zero Lower Bound on ...
1muflon1's user avatar
  • 56.4k
6 votes
Accepted

Who owns the federal reserve?

The Federal Reserve is a system, consisting of the reserve banks, which are "owned" (in a limited fashion) by their member banks (members select the leadership of the reserve banks), and the Federal ...
dismalscience's user avatar
6 votes

Gold coins as currency?

Here are three types of money: Commodity money: goods of value are used as money (e.g. gold in your example, or cigarettes in a prison), Representitive money: money is still based on a commodity but, ...
Ubiquitous's user avatar
  • 16.9k
6 votes

Is the Federal Reserve issuing money in a fair way?

No, because monetary policy is known to increase inequality. In effect, evidence indicates that monetary policy has contributed toward higher inequality. Therefore, the Fed is not being very ...
luchonacho's user avatar
  • 8,591
6 votes
Accepted

Why are banks allowed to resell mortgages?

A bank selling mortgages does not, by itself, increase the money supply. To see this, work through the balance sheet implications step-by-step: A bank makes a mortgage loan, swapping cash assets on ...
dismalscience's user avatar
6 votes

Why is the US rating AAAA+ after they printed trillions of dollars out of thin air, and bailed out the US stock market?

First of all let's get our facts straight as it is not proper to argue based on incorrect premises. The maximum ranking possible, used by conventional internationally respected debt ranking agencies, ...
1muflon1's user avatar
  • 56.4k
6 votes

Why does an economic slowdown lead to deflation?

First, let me address some incorrect premises in your question Usually economists say that in recession there is deflation, so increasing the money supply does not lead to high level of inflation. ...
1muflon1's user avatar
  • 56.4k
6 votes

Why do banks take deposits if they do not need them to make loans?

I think this perhaps seems/reads like a theoretical chicken-and-the-egg scenario, but IMO it's not really. The reality is just that fiat currency is like magic, and created out of nothing. Rather ...
unknownprotocol's user avatar
6 votes

Why was Friedman so wrong about inflation?

Why was Friedman so wrong about inflation? He actually was not wrong in a broad sense, only in more specific sense. First, you are actually misrepresenting and slightly 'strawmaning' Friedman's ideas....
1muflon1's user avatar
  • 56.4k
5 votes

How is the interest on fractional reserve money creation paid?

The key thing to note is that the interest paid does not simply accumulate at the bank. Nobody runs a business in order to just make a big pile of money to keep in a safe. The banks spend the money ...
Mick's user avatar
  • 1,046
5 votes

What are taxes for since law forbids printing of money?

The current answers correctly point out that financing the government via the printing press would generate inflation. Since inflation is bad, this would be a bad policy. However, these answers miss ...
HRSE's user avatar
  • 1,862
5 votes

Gold coins as currency?

This question rises from confusion about basics. I'm going to cite some answers I've placed elsewhere, hopefully this gives a sufficient base such that you can answer this question on your own. ...
FooBar's user avatar
  • 10.7k
5 votes
Accepted

What effect would destroying large amounts of physical currency have on government finances

In most modern economies, the central bank certainly has the authority to print money, when it does so to implement its legally defined objective. Let's consider what the implications of this '...
Tomas's user avatar
  • 174
5 votes
Accepted

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

Why have M3 not followed the same quantitive expansion as M1? Because commercial banks have used injected liquidities to "consolidate" their balance sheet instead of credit-stimulating demands. What ...
keepAlive's user avatar
  • 1,425
5 votes

Does Direct Benefit Transfers make an economy poorer?

You seem to be having some misconception how these transfers work Printing money and giving to the poor causes inflation. Increases demand and hikes prices. This is basically certain. This is not ...
1muflon1's user avatar
  • 56.4k
5 votes

Why do banks take deposits if they do not need them to make loans?

Banking is confusing, and a lot of explanations apparently make things worse. In this case, ignore whatever you read, and go back to first principles. By definition: balance sheets must balance. ...
Brian Romanchuk's user avatar

Only top scored, non community-wiki answers of a minimum length are eligible