money supply

Benjamin M. Friedman
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

Governments supply money not only for use in everyday transactions but also, in the modern era, in order to influence their economies. In most advanced industrialized economies the demand for money is sufficiently unstable to make the quantity of money supplied, or its growth rate, an unreliable guide to how monetary policy influences either prices or real economic activity. Most central banks therefore set a designated interest rate, not the quantity or growth of money supplied. But because money supply and money demand help determine market interest rates, the money supply process remains essential to analysing how monetary policy operates.
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How to cite this article

Friedman, Benjamin M. "money supply." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 22 December 2014 <http://www.dictionaryofeconomics.com/article?id=pde2008_M000236> doi:10.1057/9780230226203.1130

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