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Lesson 27

Money Supply

Monetary aggregates measure different kinds of money. The monetary base includes central-bank money such as currency and bank reserves; broader measures include deposits under their national definitions.
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Sahmino editorial· 30 July· 2 min read· General

Monetary aggregates measure different kinds of money. The monetary base includes central-bank money such as currency and bank reserves; broader measures include deposits under their national definitions. The money-to-base ratio is an observed relationship, not a permanently fixed lending machine. Credit decisions, demand for money, regulation and payment behaviour matter. The identity MV = PY relates money, velocity, prices and real output; it does not establish that a specified increase in money causes the same percentage of inflation next month.

Worked example (hypothetical)

If a broad aggregate is 6,000 units and base money 1,000, their ratio is 6. A later ratio of 5 means a 10% base increase does not mechanically imply a 10% broad-money increase.

Check your understanding

What else is needed to interpret money growth? Definitions, dates, real output, velocity and the policy context. Keep stock measures separate from monthly flows.

Sahmino AcademyEconomyMoney Supply and Monetary Base

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