The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Money Supply

  • Benjamin M. Friedman
Reference work entry


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.


Aggregate demand Central bank independence Central bank reserves Central banking Central banks Friedman, M. Goodhart’s Law Hyperinflation Inflation Interest rates Monetary base Monetary policy Monetary policy rules Money Money demand Money multiplier Money supply Open market operations Optimal monetary policy Reserve-to-deposit ratio 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Benjamin M. Friedman
    • 1
  1. 1.