Stephen Spears – Team Leader Frank Bernal – Researcher Donald Parkhurst – Researcher Cortney Coyne – Voice Talent Van Vayner - Editor

Money Supply - The total supply of money in circulation in a given country's economy at a given time

M0, the total of all physical currency, plus accounts that can be exchanged to physical currency

M1, a narrow measure of money’s function as a medium of exchange M2, a broader measure that also reflects money’s function as a store of value M3, a still broader measure that covers items that many regard as close substitutes for

money

In 2006 the Federal Reserve stopped publishing M3 data, however, private sources do give estimates of M3.

The U.S. money supply has grown from its all time high in the 2008 to an all time low in 2011. Although since the 3rd quarter of 2011 the money supply has increased and shows extremely small signs of increasing.

The Money supply decreased from about 2008 to 2011, which caused unemployment to increase at staging rates, prices to decrease, and home values to plummet.

Due in large part of the global financial crisis that began in 2008, the European Union has increased the money supply slightly. The makeup of the Union makes the control of its money supply difficult at best and impossible at worst.

The EU continues to struggle to gain momentum to a stable economy like the US and much of the world as a hole.

China’s money supply has shown a steady increase for the past decade, 2008 saw a much more rapid increase in the amount of money in the Chinese economy.

A major factor for this increase in money supply has to do with the exchange rate, which is a process in every currency in the world, is valued.

Depending on this value is how many Chinese Yuan one will receive in exchange for one US dollar.

China has been receiving much criticism of their valuation process of other countries currency. Regardless China holds a large amount of foreign reserves which contribute to its money supply.

An increase in the supply of money works both through lowering interest rates by putting more money in the hands of consumers.

If the money supply continues to expand, prices begin to rise. This inflation leads higher interest rates to offset an expected decline in purchasing power over the life of loans.

When the supply of money falls or when its rate of growth declines Economic activity declines and either disinflation or deflation are results.

Other leading economic indicators of world economies are Gross Domestic Product (GDP) per capita, often considered an indicator of a countries' standard of living, and Consumer Price Index (CPI), a measure for inflation. They also play an important role of economy’s health and economic performance.

From 1998 to 2008 the Gross Domestic Product (GDP) showed steady growth. In 2008 GDP started a steady decrease until 2011. As GDP decreased job creation slowed, which lead to increased inflation. 2011 saw an increase in GDP compared to previous years but the future is still unclear as the U.S economy struggles to regain momentum.

Like much of the globe the EU’s GDP has been affected by the global financial meltdown. Like the US the EU continues to see a decline in GDP. The chart above shows the relationship between the US and the EU’s GDP.

China’s rise in GDP has been a slow and steady increase since the 1980’s. However, since about 1992 China’s GDP has seen rapid growth and it continues today. Even though China’s in experiencing an increase in GDP, low-income wage earners see little to no change in their lives. As China’s economy continues to grow making china an extremely strong member of the global economy.

A continued growth of the Consumer Price Index (CPI) from the 4th quarter of 2009 to the end of the 1st quarter of 2012. This means that there is an increase in imports of goods which correlates to the price of goods and services in the U.S. to increase. Although in recent years the CPI has shown a steady increase, unemployment remains at a high contributing to inflation.

After an increase in its money supply in 2008, that triggered an increase in inflation the EU’s CPI increased markedly. Gross Domestic Product (GDP) and money supply has since leveled off, but the CPI has continued to increase slowly. CPI”s that rise slightly over time is a sign of a stable economy.

The chart above clearly illustrates China’s consistent CPI increase over the past 3 decades. A slight dip in 2008 was a result of the global financial crisis which had an impact on financial markets across the globe. A rise in China’s CPI is typically due to an increase in money supply.

United States Since 1914 a sustained decline

of the money supply has occurred during only three business cycle contractions: 1920–1921, 1929–1933, and 1937–1938. The severity of the economic decline in each of these downturns was a consequence of the reduction in the quantity of money, the decline in output and rise in unemployment.

Since 1914 there have been three major price inflations; each has been preceded and accompanied by an increase in the rate of growth of the money supply: 1914–1920, 1939–1948, and 1967–1980. In each case a increase of money supply that outstripped real output led to inflation.

European Union (Recent History)In November

2011, it was reported by The Telegraph that the EU's money supply was rapidly falling. This has led to fears that countries that are part of the EU may default on several major debts. If this comes to pass it would mean a severe economic downturn for the EU.

In conclusion we feel that money supply should be held stable. A large growth in money supply invariably leads to inflation and higher interest rates. A downturn in money supply leads to deflation/disinflation and a slow down in consumer spending. If this slowdown is severe enough, it could lead to loss of jobs and a more troublesome downturn. Keeping a stable money supply would assist in keeping interest rates in check, prices stable and give consumers enough money spend, thus growing the economy.

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from http://www.thyssenkrupp.com/financial-reports/10_11/en/expected_developments.html • Global Gold Supply vs. the Money Supply. (2009, 28 January). Global Gold Supply vs. the Money Supply. Retrieved from http://goldnews.bullionvault.com/gold_money_supply_012820093 • Gross Domestic Product. (n.d). Euro Economics. Retrieved from http://www.unc.edu/depts/europe/euroeconomics/GDP.php • The Street Light. (2011, October 31). The street Light Blog. Retrieved from http://streetlightblog.blogspot.com/2011_10_01_archive.html • United States GDP per Capita. (n.d). TradingEconomics. Retrieved from http://www.tradingeconomics.com/united-states/gdp-per-capita