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

Think about what the economy is at the base level. The economy is humans taking things from nature and organising to change these resources into useful things that humans can use.

The economy doesn’t grow because the money supply grows, the economy grows because people become more productive and find better ways to do things.

Money is a way to organise this process efficiently, money is a human idea. The money supply does not have to increase to encourage economic activity as humans are naturally productive and innovative. The value of money will adjust to accomodate this growth