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?

In: 339

Answer 1

If you think about it, prices “should” go down as we become more efficient. Why would a kg of bacon go up in price every year.

But the experts say that the negative development in prices would lead to people stowing away money and have an overall negative effect on the economy. The central banks tend to aim for 2% inflation.

Somone else might be able to elaborate.

-Someone who is not an expert.