eli5: How does an economy grow if the money supply doesnt increase in that same year? In gold standard suppose, gold reserves are not increased but economy still manages to grow. How is that possible, how is an economy growing on a stable money supply?

Question

eli5: How does an economy grow if the money supply doesnt increase in that same year? In gold standard suppose, gold reserves are not increased but economy still manages to grow. How is that possible, how is an economy growing on a stable money supply?

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Answer 1

The awnser is that the money supply grows. The gold standart was abandoned over 50 Years ago. But if it wasnt it would lead to deflation.

Growth without an increase in the MS is not posible. (under a Capitalist System)

Why would a Businessman invest if his return on investment is lower than just leaving it in his Bank Account.

Thats why most economists agree that 2% inflation is optimal for Economic growth

But the money supply is constanly fluctuating because Private Banks and Central Banks constanly lend out money to each other, consumers and Companies.

What money really is, is a Tool we use to distribute the Wealth created by the Economy.