The new economy, productivity and monetary policy.
Productivity is measured by total revenue of a company divided by the number of employees. Knowing the number of people, getting the number of wages earned, gives you the limit of the economy in $. Any money not spend has to be subtracted from the economy. Any money resting in the banks or mutual funds or in the mattresses are monies not spend.
Simple enough, but US economy, now, is estimated to be $8-10 trillion dollars. Japan economy is estimated as $4 trillion dollars, but can not be confirmed by the personal earnings or number of people employed. In contrast, People's republic of China can be estimated at $2-2.5 trillion dollars based on the payroll and number of people in the communist system.
The concept of monetary policy based on economy is known, but in reality, the policy is based on monthly activity, since money revolves each month. From earnings to spendings back to earnings, and so on. So, the liquidity for US monetary policy per month is about $1 trillion dollars for yearly $12 trillion dollar economy. Fortunately, we do not have to print money each month. Because, only replacement and slight increase is needed.
What is monetary policy and how is monetary policy carried out? Central banks loan out money to member banks based on a multiplier on deposit reserves. If liquidity is improved by deposit increase then the monetary policy will be in equilibrium. If not, then multiplier will be increased.
This of course leads to currency valuation, which will be discussed later. |
