Money Supply Theory

Money supply theory refers to the total amount of money available in an economy at a given time. It includes cash, coins, and balances held in bank accounts. This theory suggests that the amount of money influences economic activity, affecting inflation, interest rates, and overall growth. When the money supply increases, consumers can spend more, potentially boosting the economy but also risking inflation. Conversely, reducing the money supply can slow down spending and control inflation but might also hinder economic growth. Policymakers monitor and adjust the money supply to promote stability and economic health.