How the supply of money relates to the economy


The long-term observation of how the supply of money relates to the economy’s fundamental factors such as GDP, inflation, and unemployment posits the idea that neutrality of money is valid in the long term view. The long term is when the industry has gathered all its production factors and is not expecting any more charges in connection to the production process. According to Galbacs (2020, p. 144), the neutrality of money, in the long run, is a norm in modern economics. The way of showing neutrality of money in the long term would be to use time-series data. Figure 1 shows a positive correlation between money supply (M1) and the GDP. 

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