Money Supply and Economic Growth

Abstract

This paper gives explicit consideration to the basic role of monetary institutions in the context of a monetary growth model. The fundamental schema of this article is the following. Inflation will always affect the money rate of interest. Under the assumption that the reserves to demand deposit ratio depends on the money rate of interest, it follows that the ratio of outside money to the money supply will be influenced by inflation and ultimately the long-run equilibrium values of the real variables in a fully employed economy.