You're speaking nonsense man. Pretty much every statement of that post can be contested. I'm just going to go for a few...

If money supply is fixed and velocity of circulation is fixed, then so is GDP, by definition. In the real world there will of course be some tiny variations, but not significant ones.

Unlikely. Even if we allow that prices and income are both rising, for Y to stay the same they'd have to rising at the same rate. I'm going to use the Keynesian assumption that wages are sticky, which I believe is a sound assumption, since wage contracts are usually only reviewed annually. So whatever the case, real income will be falling.

More money being printed would decrease the real value of income. An increase the the money supply will lead to a lower price of money. So the value of money will have fallen, without wages rising to compensate.

Relevant how?

Except the government can't do this, because there's no such thing as monetary policy, as banks maintain 100% liquidity.

It really can't. We can't assume anything when it comes to canon.

 

GDP is the total market value a country's goods or services produces in a given time. The money supply may very will be constant, but that won't change the amount of money the goods or services are worth. The value of the goods and services are free to rise and fall depending on the productivity of the nation, and many other things.

While yes, the value of the money supply will change a country's GDP. It is not the sole factor in determining it. There are many other factors such as productivity, the infrastructure, and how well the global economy is doing.

In the muggle world wages are only reviewed anually. Yes in this case the real income will definitely fall. However we have no idea how often the amount of payments towards income are changed in the wizarding world. I'm gonna take a page out of your book and say that we can't assume anything Taure.

An increase of the monetary supply will lead to a rise in prices, not a fall. Inflation is defined as a rise in prices on goods. The major cause of inflation is a rise of monetary supply. More money being printed will cause a rise in prices. Thus, companies will have a bigger nominal value of money to pay their employeers.

Employeers will earn a bigger nominal value of money. However prices will rise to compensate. So in reality they are not making any more. Thus, the real income level can stay roughly the same. Inflation can lead to a growing distrust of the market, and can also affect families by making it very hard for them to save their money. However it will not decrease the overall real income level, unless wages are not updated frequently. Of course we have no idea when this is, so I could be very wrong.

Meh, got carried away.

Actually if inflation rises, more money would need to be printed. It is the government's job to do so. Not the banks. In fact, Gringotts doesn't even really qualify as a bank. Since it doesn't issue loans or funds. The government however can choose whether or not it wants to do so, thus eliminating inflation if it controls the monetary policy effectively.

Inflation is the rise of the price of goods, but also a decrease in the value of currency. It is caused by the increase of monetary supply. So if inflation does occur, some form of monetary policy would have to exist, in order to issue the currency in the first place.

 

MV = PY = GDP

It's an identity. The amount of money in an economy, multiplied by the rate at which it circulates, will give you the GDP, as will the level of real income multiplied by the price level.

We had said that Money Supply and velocity of circulation were fixed (or close enough to fixed so as to make no difference) and so MV was static, which means GDP, by definition, is static.

How does this address in any way what I had written?

No. That's one way to deal with it, but not the usual way. The usual way is to adjust interest rates, which results in a change in Sm. Or, if you want to do it the other way around, change the Sm which leads to a change in the interest rate.

But even in that second case, it would not be done through the printing of money. Printing of money makes up a very small part of adjusting the money supply: most of it is done through dictating liquidity ratios, thus effecting lending, thus effecting the Sm.

As I say above, there is a lot more to the money supply than the issuing of currency. In fact, issuing of currency is the least of it.

Also, there are other causes for inflation other than an increase in the money supply. A decrease in money demand, for example. In addition, an increase in the money supply will not always lead to inflation. This was a monetarist assumption in which they postulated that V and Y would remain constant, meaning that any change in M would be mirrored by P. This assumption was proven false when, in the 1980s, the economy under Thatcher was managed according to this theory, and inflation was the result, even though the money supply was kept under control.

 

We have no idea as to whether or not money circulates throughout Wizarding Britain. For all we know the ministry could be issuing loans. Nevertheless, money supply would not stay constant. Productivity and unemployment would cause the money supply to either rise or fall. Which would most certainly affect the GDP.

Terribly sorry, I misread the value of money as the value of prices. Though yes if wages are only reviewed annually, you would be right in assuming the income level would marginally decrease.

Yes but from what we have seen, interest rates do not exist in the wizarding government, and as the banks have 100% liquid assets we cannot really change the ratios. Since there is no lending of money in the wizarding world in the first place. Thus money can only be brought in by it's creation. Most assuredly the government would have some sort of monetary policy in this case.

 

We know all the departments of the Ministry, and none of them relate to monetary policy. So it has to be the goblins who do it. Or another country.

Harry buys wand. Ollivander buys wood. Lumberjack buys food. There we go. In this simple example, the single galleon has circulated 3 times.

Since when did these affect the money supply? Money supply is determined by the amount of money in the economy. People being unemployed or productive isn't going to change this.

 

Hmm, that's a good point. Obviously whoever it is has to be doing a good job, or else the government would probably interfere.

Hah! I probably should have explained more. By circulation, I meant how interest rates and loans are paid back. I was referencing the cycle of this process. It wasn't so much as a reply to your quote, but more of a way to show that the government needs to have a monetary policy.

The money supply is defined as all the money held by the public at a point of time. Unemployment causes poverty. Those people aren't going to have much money. Low productivity will harm a company's income. Thus, they are not going to have much money. As people are losing money, money supply overall will decrease.

 

The same quantity of money is still there in the economy though. Unemployment and low productivity might affect the rate of circulation (which is usually assumed to be constant), but not the actual money supply.

 

Nope. People will make less money, and the tax rate will stay the same. So more money is lost because of tax rates, when low productivity and high unemployment exist.

 

Which just means that the money will be in possession of someone else who is employed, or the firm who would have paid that person. Someone will have the money, somewhere.

Tax is proportional to income. So if people are making less money, they'll be paying less tax. They'll also be able to claim unemployment benefit off the government.

 

Yes tax is proportional to income. However as people make less money, the tax rate will still be the same. I am saying that they will not lower it to compensate. In fact they might raise it in order to generate more revenue. Also unemployment benefits do not help the economy, and we have the question as to whether or not the wizarding world even has such a thing.

Also money supply overall doesn't have to necessarily decrease. The rate at which money is increased can certainly decrease by a percent. Money supply will not rise up to the standard of the global economy. Which will have a negative impact on the GDP.

Though money supply can decrease if people leave the native country. Or if debt is owed to a foreign nation, which must be paid off.

 

And since tax is a % of income, the proportion of money leaving the economy via tax will not have changed from when a person was employed to when they were unemployed. In fact, they most likely move into a lower income bracket, so pay less tax.

Thus, tax being the justification for unemployment causing a fall in money supply is bogus.

However, going back to MV = PY, if we say that P and V are constant (unlikely) we can say that unemployment (or rather the fall in national income that comes with it) or productivity falling (or rather, the fall in output associated with it) will result in a fall in the money supply. But this is assuming that P and V are constant. So you are right, under assumptions (and what economics isn't full of assumptions?).

 

Yes, but the government still has an expenditure to pay. With lower taxes it becomes much more difficult. As the government loses money to debt, the money supply can decrease.

 

In the real world taxes come into play, but like we have not seen an Ministry departments that deal with money, we haven't seen any tax offices, either.

 

They can borrow (though not in the wizarding world, apparently), reduce expenditure, or use their reserves.

 

This is merely an inconsistency on J.K's part. The ministry has to have taxes, or else it wouldn't be able to fund it's many workers. Its auror force. Nor would it be able to fund the floo network, and other things alike.

That is true of course. Money supply itself will only decrease if the majority of the populace are in debt (which I don't think applies to the wizarding world), or a lot of people leave the country. Nevertheless this will surely have a negative impact on their GDP.

 

Unless, like Gringotts, it employs curse breakers to find them gold. Or relies completely on donations from people like Malfoy. Or uses the Muggle world to its advantage to gain funds, as we have discussed previously in this thread (the Ministry may pass laws stopping ordinary people taking advantage of the Muggles, but who's to stop the Ministry itself?).

 

Yeah I changed it.... happy now?

 

Yes indeed. Meh, it's gonna help me in long run. At the expense of Taure's time.