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To: Glenn D. Rudolph who wrote (87155)	12/12/1999 3:16:00 PM
From: Eric Wells	Read Replies (1) \| Respond to of 164684

is not the $1K in the bank still $1K? Yes. But, it's my understanding that increasing the money supply leads to inflationary pressure. I believe that banks maintain only a certain percentage of cash reserves. Therefore, if more cash is infused into the economy (via banks) then the cash will make its way into the economy and stay there. As I've stated before, I'm no economist - so I'm not arguing the point here from any position of expertise. But I'm sitting here looking at a textbook from one of my graduate economics courses at UCLA (Macroeconomics by Robert J. Gordon, published by Scott, Foresman, Little Brown) and on page 494 it specifically states that increases in the money supply leads to inflationary pressures. The book lays out the following theoretical equation: MV=PQ M=Money Supply V=Velocity of money P=Price level Q=Real GNP If you increase M, then either V must decrease or the right side of the equation must increase as well. Assuming V remains constant, the right side of the equation can increase through an increase in P (prices) or Q (real GNP, or output). A rapid increase in M would suggest that P would be more likely to increase to compensate than Q. An increase in P would translate into inflationary pressure. Again, I'm not an expert. And when I pulled my macroeconomics text off the shelf this morning, it was the first time I had touched the text, or even thought much about the subject at hand, in eight years. But if I'm interpreting all this incorrectly - please correct me. Thanks, -Eric