【分析解答题】

The quantity theory of money holds that the money supply, multiplied by the rate at which it circulates (called velocity 称做周转率) , equals nominal income. Nominal income in turn is the product of real output and prices.But does money supply directly boost nominal income, or does nominal income affect velocity and the demand for money The mechanism is murky.

Central banks control the narrowest measure of the money supply, called the monetary base (货币基数) —typically, currency plus the reserves that commercial banks hold with the central bank.But the relationships between the monetary base, broader monetary aggregates and nominal income is highly unstable.
Central banks have mostly given up trying to target inflation via the money supply. Instead, they study the "output gap" between total demand and the economy’s potential to supply goods and services, determined by such things as the labour force and capital stock, as well as inflation expectations. When demand exceeds supply, inflation rises. When it falls short, inflation falls, and in the extreme becomes deflation. To influence demand, the central banks move a short-term interest rate up or down by adjusting the supply of bank reserves.Changes in the policy rate ripple out to all interest rates paid by borrowers.