Growth Of Money Growth

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Economic growth, money growth, and inflation are highly related. In the graph displayed above we can see China’s figures over the years 2003-2012. Inflation increases with money growth.

In years of financial distress, e.g. during the last financial crisis (here: economic growth numbers hit the decline stage in 2007), especially to be noticed in the year 2009 in the displayed graph, people feel more reluctant to invest their money and tend to hold on to their limited financial assets. Therefore the government increased China’s money supply drastically, which explains the money growth peak of 2009 (28.42%). By increasing and decreasing the money supply China’s government attempts to control the economy. If the growth of the money supply is slowed too much, the economy will slow as well. In times of economic troubles an increase of the money supply intends to stimulate the economy with additional liquid assets. However, if the money supply grows too much the rate of inflation will eventually increase. Since inflation is known to be a lagging economic indicator, we initially notice a long term low in 2009 of -0.7%. However inflation picks up soon after the increased money growth of 2009 and amounts to 3.31% in 2010. Money growth stimulates inflation, meaning increased money growth will also lead to increased inflation short after. Decreased money supply on the other hand will be followed by a decrease in inflation.
The central bank attempts to control the expanding and contracting of GDP, as we know when GDP grows too quickly it may contract quickly soon after. One tool the central bank may use to affect the expansion and contraction is its monetary policy. In times of economic boom the Central Bank may use contractionary monetar...

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...a contains 36 percent of the rare earth deposits in the world. However by


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