Money: A Thought Experiment

Suppose that banks increase their demand for bank reserves. Now suppose that the Federal Reserve increases bank reserves correspondingly. What happens to the broader money supply? What happens to nominal income? What happens to inflation?

The answer is nothing.

I have been trying to make this point in several posts (see here, here, and here), but thus far to no avail (at least among critics).

5 responses to “Money: A Thought Experiment

  1. I’m convinced!

  2. Pingback: Are Money and Bonds Perfect Substitutes? « The Everyday Economist

  3. Pingback: Are Money and Bonds Perfect Substitutes? | Top Equity News

  4. Pingback: Are Money and Bonds Perfect Substitutes? | Reaction Radio

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