Could Someone Please Explain the Money Supply?

[Arnfinn Madsen]

Whether inflation is a good thing or not is debateable, it is also a value question wrt to whose needs are more important than whose. What is clear is that our current economies benefits from inflation in many ways, it makes the financial system more stable and also makes the clearing of the labor market more smooth (especially in many European countries where nominal wages are relatively static). Also that people spend and invest money instead of putting it in a cupboard is good for the economy as a whole and inflation contributes to triggering that. If the expected inflation however becomes very high the economy is damaged due to the inefficiencies it creates in transactions, note that expected high inflation is a problem even when the real inflation is low, so the government constantly tries to ensure the private sector that future inflation will not be high.