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Basic economics also teaches that the money supply shrinks when loans are repaid; [13] [14] however, the money supply will not necessarily decrease depending on the creation of new loans and other effects. Other than loans, investment activities of commercial banks and the Federal Reserve also increase and decrease the money supply. [15]
Instruments of monetary policy have included short-term interest rates and bank reserves through the monetary base. [1]With the creation of the Bank of England in 1694, which acquired the responsibility to print notes and back them with gold, the idea of monetary policy as independent of executive action began to be established. [2]
The increase in gold reserves increased the money supply, lowering real interest rates which in turn increased investment in durable goods. A year earlier, in 1933, Executive Order 6102 had made it a criminal offense for U.S. citizens to own or trade gold anywhere in the world, with exceptions for some jewelry and collector's coins. These ...
While the North doubled its money supply during the war, the volume of money in the South increased 20 times over from 1861 to 1865, and prices soared. An item that cost one Confederate dollar in 1861 cost 92 of these dollars in 1865.
Consequently, the importance of the money supply as a guide for the conduct of monetary policy has diminished over time, [65] and after the 1980s central banks have shifted away from policies that focus on money supply targeting. Today, it is widely considered a weak policy, because it is not stably related to the growth of real output.
The Federal Reserve tightened the money supply and inflation was substantially lower in the 1980s, and hence the value of the U.S. dollar stabilized. [91] Over the thirty-year period from 1981 to 2009, the U.S. dollar lost over half its value. [84]
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The plaintiffs in all cases received paper money, instead of gold, despite the contracts' terms. The contracts and the bonds were written precisely to avoid currency debasement by requiring payment in gold coin. The paper money which was redeemable in gold was instead irredeemable based on Nortz v. United States, 294 U.S. 317 (1935).