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How could the free market determine the money supply?
by whatshisface 5y ago
How could the free market determine the money supply?
- rsj_hn 5y agoThe free market always determines the money supply, that’s not the issue. Money is created when banks make loans and is destroyed when loans are repaid. The problem is sometimes this mechanism breaks down during a banking crisis and turn get deflation or it balloons in a speculative bubble and you get inflation.
- whatshisface 5y agoI learned in economics 101 that although banks are individually responsible for making the money, the overall supply is ultimately controlled by the interest rate and reserve requirements. Both are set by the government. The free market determines who the money is supplied to, but it doesn't determine the money supply.