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

Money does not define the economy. The economy is all the goods and services that are produced. If the population grows and/or the people increase productivity, then the economy will grow.

“Money creation” is a complicated thing. It isn’t just printed and dropped from helicopters. Central banks try to be careful about how much is to be made available through loans in such a way that it balances maintains employment levels and price levels simultaneously. People argue about whether they are doing it correctly, of course.

The gold standard wasn’t better. People were at the mercy of gold miners. If there wasn’t enough money, you had to wait for it to be “found” in some remote area of the Yukon.