What is money supply and its determinants?

What is money supply and its determinants?

Thus the determinants of money supply are both exogenous and endogenous which can be described broadly as: the minimum cash reserve ratio, the level of bank reserves, and the desire of the people to hold currency relative to deposits.

What is the relationship between money supply and inflation?

To summarize, the money supply is important because if the money supply grows at a faster rate than the economy’s ability to produce goods and services, then inflation will result. Also, a money supply that does not grow fast enough can lead to decreases in production, leading to increases in unemployment.

Which of the following would cause the supply curve to shift?

Factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies.

What are measures of money supply?

There are several standard measures of the money supply, including the monetary base, M1, and M2. The monetary base: the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve).

What will not shift a supply curve?

A supply curve is a graphical representation of a supply schedule. A change in price causes a movement along the supply curve; such a movement is called a change in quantity supplied. As is the case with a change in quantity demanded, a change in quantity supplied does not shift the supply curve.

What are the factors that affect demand and supply?

These factors include:

  • Price of the Product.
  • The Consumer’s Income.
  • The Price of Related Goods.
  • The Tastes and Preferences of Consumers.
  • The Consumer’s Expectations.
  • The Number of Consumers in the Market.

Why is printing more money bad?

The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse.

What are the 7 factors that shift supply?

ADVERTISEMENTS: The seven factors which affect the changes of supply are as follows: (i) Natural Conditions (ii) Technical Progress (iii) Change in Factor Prices (iv) Transport Improvements (v) Calamities (vi) Monopolies (vii) Fiscal Policy.

Is money becoming obsolete?

For some, cash is still something they use everyday. For younger generations, cash is becoming more and more obsolete. The future of cash has become an ongoing debate, but mostly among economists. For the average person, it’s a moot point—since we have access to a variety of forms of payment, there’s no conflict.

What are the factors affecting money supply?

Key factors affecting the demand for money

  • The rate of interest on loans.
  • The number / value of monetary transactions that we expect to carry out.

How does money supply increase inflation?

Demand-pull inflation occurs when consumers demand goods, possibly because of the larger money supply, at a rate faster than production. Cost-push inflation occurs when the input prices for goods tend to rise, possibly because of larger money supply, at a rate faster than consumer preferences change.

What causes a supply curve to shift to the left?

Expectations – if sellers expect prices to increase, they may decrease the quantity currently supplied at a given price in order to be able to supply more when the price increases, resulting in a supply curve shift to the left.

What is it called when money becomes worthless?

Hyperinflation causes consumers and businesses to need more money to buy products due to higher prices. When prices rise excessively, cash, or savings deposited in banks decreases in value or becomes worthless since the money has far less purchasing power.

Which is not a cause for supply to change?

Although a change in price of a good or service typically causes a change in quantity supplied or a movement along the supply curve for that specific good or service, it does not cause the supply curve itself to shift.

Why can’t the country print more money?

When a whole country tries to get richer by printing more money, it rarely works. Because if everyone has more money, prices go up instead. And people find they need more and more money to buy the same amount of goods.

Why do we measure money supply?

Economists measure the money supply because it is directly connected to the activity taking place all around us in the economy. In addition, the Federal Reserve’s Board of Governors and the Federal Open Market Committee use this information as the basis of their monetary policy.

How does change in technology affect supply curve?

Technological advances that improve production efficiency will shift a supply curve to the right. The cost of production goes down, and consumers will demand more of the product at lower prices. At lower prices, consumers can purchase more TVs and computers, causing the supply curve to shift to the right.