The right amount will vary as the economy grows, and as the demand for money fluctuates.
But does money supply directly boost nominal income, or does nominal income affect velocity and the demand for money?
The money supply would adjust to the demand for money and the long-run value of money would remain relatively stable.
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Eventually, the week-to-week money supply numbers proved too erratic to target directly (the demand for money balances became less stable).
The K , or demand for money, could be omitted by undergraduates without much penalty, but not so for graduate students.
To modern Austrians an increase in the supply of money is inflation no matter the corresponding increase in the demand for money.
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He would look at velocity, the number of times a dollar turns over in a given year, to gauge demand for money.
If yields are rising, it means demand for money is picking up.
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If V (the income velocity of money which reflects the demand for money) is fairly steady, then M (money) growth should be 4%.
But the order eased up considerably the ban on future speech, so long as that speech is not tied to a demand for money.
On this account, governments impose taxes payable only in money, creating a demand for money that means it will be widely accepted as payment for goods.
This has nothing to do with the gold standard system itself, which is wholly capable of accommodating the increased demand for money that usually accompanies economic expansion.
Unlike the classical gold standard, there is no market feedback mechanism to bring the quantity of money in line with the demand for money while maintaining long-run price stability.
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Under a genuine gold standard, the money supply responds automatically to the demand for money, and the value of money is anchored by defining the dollar in terms of gold.
Under a true gold standard, the optimal quantity of money is determined by market forces the money supply spontaneously adjusts to the demand for money, and long-run price stability is achieved.
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In the case of interest rates, the determinative factors should be the supply of savings available to lend and the demand for money by people and business who want to borrow.
More realistically, it's important to remember that the demand for money shifts all the time, and a combination of domestic and world events in 1980 was the catalyst for a rising greenback.
Fluctuations in the market price of gold as measured in dollars and euros would send the respective central banks real-time information on how to adjust dollar and euro liquidity to accommodate the demand for money.
The question Mundell avoids answering is how the central monetary authority, in whatever guise it ends up, will determine the demand for money so as to adjust the supply of money appropriately without inflating or deflating the currency?
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Yes, higher interest rates will cause problems for various sectors of the economy, but the ability to inflate other things in response will help raise the demand for money to meet the contraction by the Fed to a level that properly supports the economy.
The market is pegging 30-year inflation at a slightly higher 2.0 percent rate, which is the spread between long-term 30-year Treasury nominal bonds and 30-year TIPS. Federal Reserve policy to increase the money supply has not led to inflation during this recovery because the demand for money has been lower than in other recoveries when inflation did occur.
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Equally, it is wrong for politicians to demand money for services rendered or threats not carried through.
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The possibly sharp increase in nominal interest rates would tend to reduce demand for base money.
Last week, Spain's bond yields a gauge of the compensation investors demand for lending money to the country shot sharply higher, hitting a record of 6.952% on Thursday.
On the other hand, if the economy recovers sufficiently fast and the banking system is quickly recapitalised, the demand for base money would on balance increase.
The theory is that higher shortterm rates inhibit lending and investment, helping to precipitate the slowdown, while the low long-term rates anticipate a later cooling of demand for borrowed money.
Interest in things such as green products and healthy foods will continue to grow in a post-crisis world, but customers will be less willing to pay a premium for them, and will demand more value for money when they do.
Although currently resisting moves to this effect from the European Commission, mobile operators may yet find that they stand to make more money from increasing demand for simple voice services than losing even more money on 3G.
There was no demand to the court for money damages or anything else.
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