Podcast
Questions and Answers
What does M2 define as money?
What does M2 define as money?
What is the outcome of slowing the creation of real M2?
What is the outcome of slowing the creation of real M2?
Which event was described as the worst recession since the Great Depression?
Which event was described as the worst recession since the Great Depression?
What significantly impacted the rise of the stock market from 1982 to 1987?
What significantly impacted the rise of the stock market from 1982 to 1987?
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What happens when the supply of new money to the stock market dries up?
What happens when the supply of new money to the stock market dries up?
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The stock market rose sharply due to the new money inflow, but what did this lead to?
The stock market rose sharply due to the new money inflow, but what did this lead to?
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What was the stock market level in 1982 before the boom?
What was the stock market level in 1982 before the boom?
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Study Notes
Money Supply and Recessions
- M2 money includes currency, checking accounts, travelers checks, savings accounts, money market mutual funds, and certain bank transactions.
- Real M2 is M2 adjusted for inflation.
- Recessions frequently follow periods where the government slows real M2 creation.
1982-1987 Stock Market Boom and Bust
- The 1982 recession was severe, comparable to the Great Depression.
- To address this, the money supply was significantly increased from 1983 to 1986, leading to stock market inflation.
- The inflated money supply fueled a stock market boom, with the market index rising from 777 in 1982 to 272212 in 1987.
- The increase in stock values was driven by increased investment and caused by easily accessible money.
- As the inflation rate in M2 fell in 1987, the money supply shrank and the stock market crashed.
- This resulted in a severe stock market crash and subsequent recession.
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Description
Explore the relationship between money supply and recessions through historical events, focusing on the 1982-1987 stock market boom and bust. Understand concepts like M2 money and its inflation adjustments, and how government policies can influence market stability.
