# Money and credit

Readers Question: In simple terms what is the difference between credit and money? Credit Credit is any form of deferred payment. For example, if you purchase on a credit card – a bank effectively pays on your behalf – anticipating you will pay back the amount to the credit card company in six weeks time. If a bank lends money to a consumer, this is a form of credit. The consumer is given money, which it later has to pay back to the bank. Money Money is any item or electronic record that can…

# Why did printing dollars not cause a fall in value of the dollar?

Readers Question: Economic theory says that when Quantity (Q.S) increases Price (P) should ordinarily fall. After the 2007 crisis in the USA, the FED pumped billions of Dollars into the economy through QE. However the price of dollars, interest rate has not only fallen lower, but is closer to zero as of today ( 2016). How do you explain this? It is true that since 2007, the Fed has increased the money supply, but there has been no collapse in the dollar, and inflation has stayed very low. You might expect…

# Velocity of circulation and inflation

Readers Question: When does velocity of money pick up and why will it? Clearly the reason US inflation worriers have been wrong so far(NB). Is it confidence or policy? The velocity of circulation / velocity of money refers to how frequently the money stock in an economy is used in a given time period. In the basic money supply equation we have MV=PY M= Money supply V = Velocity of circulation P = Price Level Y = Income (in other versions, T also used for transactions) If there is £1,000bn of money in the economy, and…

# Money Supply in the credit crunch and recession

Question: re: article on the great recession. How did the money supply affect the credit crunch and recession? Firstly, we can look at the statistics for the money supply growth rate in the UK. Source: Bank of England This shows strong growth in the broad money supply in the years leading up to the credit crunch. – An annual growth rate of 10%. By 2010, broad money supply growth had become negative. This is a result of the fall in bank lending…

# Money Supply, Bank Lending and Quantitative Easing

Since 2009, the Bank of England has been authorized to create £375bn of assets by the creation of central bank reserves. This new money has been used to purchase government gilts. The theory is that by creating extra money and buying gilts from financial institutions, there would be an increase in the money supply and increase…