Monetary vs Fiscal Policies
Monetary policies deal with regulating the supply of money. These can influence inflation or bank interest rates.
Fiscal policies, on the other hand, deal with taxes and government spending.
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Money Supply & Inflation
We can measure the supply of money that exists in the market with main metrics:
- M1 money supply includes liquid money aka cash.
- M2 (which includes M1) includes loans, deposits & market funds. This is mainly made up money.
Demand-Pull Inflation
Demand-pull inflation is the increase in aggregate demand, categorized by the four sections of the macroeconomy: households, business. governments. and foreign buyers.
Demand-pull inflation can be cause by an expanding economy, increased government spending, or overseas growth.
The Invention of Paper Money
The King Williams Administration used to borrow large sums of money used for wars and then levied taxes on ship cargo and spirits to pay back the interest. This gave rise to Banks like the Bank of England, and finally Bank Notes, the currency still used today.
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