Economics Help :(

by Splodge • 3 Dec 2007, 22:28 • Journals
Im having trouble with this question, it's based around the Quantity theory of money (Fisher Equation MV=PT) and Money Supply.

"Q2. Discuss whether increases in money supply would improve performance of the UK economy."

These are my ideas so far:


QuoteIncreasing money supply is likely to have many effects on the economy, some that are beneficial and some that are not so beneficial.

Firstly, by controlling money supply you can have some control over the economic cycle. For example, it is widely know that booms and unsustainable and recessions are not favourable and both together can create uncertainty within a market and therefore affecting the level of investment into the economy by both foreign parties and nationally from consumers. However by limiting money supply during a boom and increasing it during a recessive period to stimulate aggregate supply the peaks and troughs of the economic cycle are far less prominent.


I'm going to include the fact that if you increase money supply and not enough aggregate demand is created = bad + its effects. But I need at least another advantage and disadvantage.

Any ideas?
Comments
21
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Puubuu 3 Dec 2007, 22:31
i know it but wont share :Dd:DD:dD.Dd.Ddd:DD:Dd.d.d:Dd
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Rapt6rr 3 Dec 2007, 22:31
Well, as far as I know, sometimes you need to add money to make sure the cycle runs normally (example: US gov. had to add money to compensate the loss due to the housing crisis). On the other hand, if you add too much money, then it causes inflation, and people can buy less, so its shit.
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woot 3 Dec 2007, 22:36
an advantage of adding money is like

when you add money but not to much the people buy a the same "without even knowing they pay more"

this is also good cause when you lend some money from bank interest will be lower so you pay less

then if you add to much money (more than 2,5 procent plusminus)

foreign investers will leave the country

and the saving on long term for the small investers sucks

i think this is what you mean

rapter dunno why i replied to u sorry:D
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Spree 3 Dec 2007, 22:32
Dno if u mean this, but this is what I've been learned:

If you increase the amount of money, the value will drop and it'll cause inflation.
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Splodge 3 Dec 2007, 22:37
Yeah ive talked about inflation and money supply in a separate question but I guess i can include it again to fill up some space :)

Just wondering if there are any other problems linked to it (e.g Confidence and Speculation) or something?
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woot 3 Dec 2007, 22:59
to make it easy

if i am from belgium and i change a million euros in pounds

then you guys add money the next day

the day after i change pounds in euros i have more money

speculating or gambling or having information on this can make you rich :D
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st4tic 3 Dec 2007, 22:39
ask MaltanEv
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Pho3niX 3 Dec 2007, 23:20
being me
i say go tutor2u.net
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st4tic 3 Dec 2007, 23:28
ara xrispett andi lejk ta
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Wastestuff 3 Dec 2007, 22:42
Well, the more money the "people" will have to spend the better it is for the economy MV+ = PT+

The only way this works out well, is if the interest is low (so people will spend instead of save money.

You probably already know this. But maybe it helps.
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HellKn1ght 3 Dec 2007, 23:00
hahaha I passed my economics exam without learning a single formula :X
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SlimShady 3 Dec 2007, 23:18
Get info on the monetarist / keynseanist (dunno bout the spelling) approach during recession and prosperity phases.

Look into the expansive money politics and restrictive money politics.

imo:

Incerease of the money supply would bring the value of the pound down so prices would go up and ppl with the same paycheck as before could buy less -> less money would be brought back to the firms -> the firms would have to make less products (the money they would recive would cover less of the costs) -> less money would go to paychecks -> ppl could buy even less

soz for my terminology -> i study economics but dont know the english expressions. i hope u got the point.
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Optimal 3 Dec 2007, 23:36
omg m1ke

that imo part is totaly wrong...
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SlimShady 3 Dec 2007, 23:37
zato je pa imo.
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thirtysix 3 Dec 2007, 23:20
Allows pay rises for workers which increases morale.

It's also probably worth writing a definition of what money supply is. At least that's what my economics teacher always says (to define key terms in exam questions and not assume the examiner knows what things mean.)
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kyp 3 Dec 2007, 23:20
the more central banks supply money, the more banks are confident (they dont risk being short on money) and will lend to each other, interest rates will lower which means more consumption and less savings...
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R0SS 3 Dec 2007, 23:29
it will affect ur exchange rate. More supply of money = lower rate of exchange if i remember correctly. This could be used as an advantage to countries that import our goods, but its a disadvantage to our economy as we have to pay more to import their goods.
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Splodge 3 Dec 2007, 23:48
ok thanks everyone ive managed to answer the question :)
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