The money supply in the Australian economy refers to the total amount of money available in the country’s economy at any given point in time. There are several definitions that can be used for money. But in terms of economics; money refers to the currency in circulation and the demand deposits in banking institutions.
To determine the money supply in the Australian economy, money supply data is published by the government or the central monetary agency of the country. These figures are then analyzed by public and private sector analysts who offer their verdict on the level of inflation and prices in the country.
The relationship between the amount of money in the economy and the price is well defined and historically related to the quantity theory. There is direct relation between economic factors such as the money supply growth and the long term price inflation. Therefore it becomes crucial to maintain a monetary policy in order to control inflation today and tomorrow.
Currently, Australia is facing economic turmoil just like the other countries around the world yet when judging the state of the national economy people seldom talk about the money supply in the Australian economy, particularly the credit component. Unfortunately, most economists and experts refuse to accept the possibility that the imbalances generated by credit expansion may have caused the current account deficit.
Many renegade experts believe that the monetary policy of the Reserve Bank of Australia is proving detrimental to the money supply in the Australian economy. As a matter of fact they believe that these policies have led to the current account deficit by distorting the pattern of production. Lowering the interest rates is a step that has its own share of flaws for instance; this step has caused credit to expand rapidly.
Credit expansion in turn causes several other effects such as a rise in the producer prices. This is often misconstrued as inflation when in reality it is simply a product of an inflationary policy. The economy of any country is no different than a multi-storied house. If you let the taps run on the top floors eventually the whole house will get flooded. And even if you turn off the taps it will be some time before the house dries out. So even if the RBA were to stop the credit expansion today it would take a while for the effects of such a measure to be seen on the economy