Is the money supply related to jobs, wages and output?
At any point of time, the price level in the economy is determined by the amount of money floating around. An increase in the money supply – currency with the public, demand deposits and time deposits – increases prices all round because there is more currency moving towards the same goods and services. Typically, the RBI follows a least-inflation policy, which means that its money market operations as well as changes in the bank rate are generally designed to minimise the inflationary impact of money supply changes. Since most people can generally see through this strategy, it limits the impact of the RBI’s monetary moves to affect jobs or production. The markets, however, move to the RBI’s tune because of the link between interest rates and capital market yields. The RBI’s policies have maximum impact on volatile foreign exchange and stock markets. Jobs, wages and output are affected over the long run, if the trends of high inflation or low liquidity persist for very long period. If
