The document discusses the impact of macroeconomic factors on money supply. It begins by introducing macroeconomics and key macroeconomic indicators such as GDP, unemployment, and inflation. It then explains the different components that make up the money supply, including M1, M2, M3, and M4. The document also discusses how GDP is linked to money supply through the equation of exchange. It describes how fiscal and monetary policy can be used to influence the money supply and broader economy. Finally, it covers the definitions and impacts of inflation and how foreign exchange rates are determined.

1. IMPACT OF MACRO
ECONOMIC FACTORS
ON MONEY SUPPLY

2. INTRODUCTION
Macroeconomics (from the Greek prefix makro- meaning
"large" and economics) is a branch of economics dealing with
the performance, structure, behavior, and decision-making of
an economy as a whole, rather than individual markets. John
Maynard Keynes, an English economist, intriduced
macroeconomics hence it is also referred to as Keynesianism.
Macroecnomic factor that is pertinent to a broad economy at
the regional or national level and affects a large population
rather than a few select individuals. Macroeconomic factors
such as economic output, unemployment, inflation, savings and
investment are key indicators of economic performance and are
closely monitored by governments, businesses and consumers.

3. COMPONENTS OF THE MONEY SUPPLY
Major monetory aggregates are the quatitative measures of the
supply of money. They are known today as M1 , M2, M3 and
M4 .
M1 ( Narrow money )
Comprises all the currency in the economy as well as the
money in savings and current accounts held with banks.
M2
M 1 + Fixed deposist held with banks.
M3
M 2 + Fixed deposits with banks
M4
M 3 + All deposits with post office

4. GDP AND MONEY SUPPLY
GDP is the monetary value of all the finished goods and
services within a country’s bordes in a specific time period.
Link of GDP with money supply
MV = PQ
 M is the total dollars in the nation’s money supply
 V is the number of times per year each dollar is spent (velocity)
 P is the average price of all the goods and services sold during
the year
 Q is the quantity of assets, goods and services sold during the
year

5. EFFECT OF GDP ON MONEY SUPPLY
Money supply and GDP do not automatically affect each other,
but Money Supply can affect GDP depending on monetary
policy. The GDP can only increase the demand of money and
transactions will stall if that demand is not met. GDP
affect money supply through the banking system. When growth
is high , banks make additional loan and expand the money.
MACROECONOMIC POLICY
Macroeconomic policy is usually implemented through two
sets of tools: fiscal and monetary policy.

6.  MONETARY POLICY
Central banks take action by issuing money to buy bonds (or
other assets), which boosts the supply of money and lowers
interest rates, or, in the case of contractionary monetary policy,
banks sell bonds and takes money out of circulation. Usually
policy is not implemented by directly targeting the supply of
money.
 FISCAL POLICY
Fiscal policy is the use of government's revenue and
expenditure as instruments to influence the economy. . If the
economy is producing less than potential output, government
spending can be used to employ idle resources and boost
output.

7. DEFINITION AND IMPACT OF
INFLATION
 Recall that inflation occurs when the general level of
prices is rising . The rate of inflation is the percentage
change in a price index from one peroid to the next.
 The major price indexes are the Consumer Price Index
(CPI) and the GDP deflator.
 Inflation affects the economy by redistributing income &
wealth and by impairing efficiency. Unanticipated
inflation usually favours debtors , profit seekers ,and risk
taking speculators.
 It hurts creditors , fixed income and timid investors.It
leads to distortions in relative prices,taxes rates and real
interest rates.

8. DETERMINATION OF FOREIGN
EXCHANGE RATES
The foreign exchange rate is the price of one currency in terms
of another currency . When we want to exchange one nations
money for that of another, we do so at the relevant foreign
exchange rate. There is a foreign exchange rate between US
dollars and the currency of every other country.
We measure the foreign exchange rate (e) as the amount of
foreign currency that can be bought with 1 unit of domestic
currency:
e = foreign currency = yen = euro
domestic currency $ $

9. DETERMINATION OF FOREIGN
EXCHANGE RATES
 A fall in the market price of a currency is a depreciation;
a rise in a currency value is called an appreciation . In a
system where governments announce offical foreign
exchange rates ,a decrease in the official exchange rate is
called a devalution , while an increase is a revalution.
 According to the purchase power parity theroy of
exchange rates tend to move with changes in relative
price levels of different countries . This theroy helps to
measure the purchasing power of incomes in different
countries ,it raises the per capita outputs of low income
countries.

10. PPPAND THE SIZE OF THE NATION
 The customer approach is to use the market exchange
rate to convert each currency into dollars.
 The market rates can rise & fall sharply , the "size“ of
countries might change by 10 or 20 % overnight .
Moreover, the use of market exchange rates tends to
under estimate the national outputs.
 Economists generally prefer to use ppp exchange rates to
compare living stands in different countries.
 When market exchange rates are used , the income &
outcome of low income countries tend to be understated

11. PPPAND THE SIZE OF THE NATION
 Under statement occurs because a substantial part of the
output of such countries come from labour intensive
services
 When we calaculate Purchase Power Parity (ppp)
exchange rates including the prices of non traded goods ,
the GDPs of low income countries rise relative to those
of high income countries
For example ,when PPP exchange rates are used , china
GDP is 2.3 times of the level calaculated using market
exchange.

12. THE CRISIS IN 2013 ENVELOPING
INDIA'S CURRENCY
 There’s really no denying it: India’s got a full-
blown currency crisis on its hands.
 The rupee fell a remarkable 3% in trading today.
At points it touched 68 per US dollar, a never-
before-reached level. It’s fallen nearly 23%
against the US dollar in the last six months.
 India needs far-reaching reforms. Corruption,
labor market structure, subsidies. They all need
work. But before it moves on any of those
issues—if it ever does—India still needs to put
the fire out.
Here 's how to do it.

13. FALLING RUPEE : CAUSES AND
PERKS
 Recession in the Euro zone
 Forex demand
 Poor current account deficit
 No balance at balance of payments
 Volatility in the equity market
 Withdrawal of investors
 Price of crude oil
 Increased demand for gold

15. 1) Fight the markets:
 The Reserve Bank of India (RBI) needs to put everything it’s
got into intervening in the markets to beat back the speculators
pushing the rupee lower.
 To be clear, the RBI has already been active in the markets. But
it has shown little appetite for a real fight.
 The bank has tended to intervene late in the trading day.But
the market is a bully. And it needs to be confronted face to face.
HOW TO SAVE THE VALUE OF RUPEE?

16. 2) Get help:
 Once the RBI commits to a serious showdown with the
markets, it will be tested. That means the RBI is going to have
to dip into its FX reserves and continue buying until the market
is convinced it will hold the line.
 If the market sees them shrinking too much it will feel
emboldened to keep pushing the value of the rupee lower.
 That’s why the RBI needs help. It needs to find a reliable
source of hard currency to convince the market is has almost
unlimited buying power to defend the rupee.
 An effective way of doing that is by cutting a deal with another
central bank to swap currencies. These are called swap lines.

17. 3) Clamp down on cash outflows :
 India’s got to thread a very difficult line here. It has to try to
keep hard currency from fleeing the country.
 It doesn’t want to impose the type of hard and fast capital
controls that tend to make investors want to pull every last cent
out of a country as fast as possible. So it can take half
measures. And that’s what it’s done.
 It’s moved to cut the imports of commodities such as gold and
oil as well as plasma televisions. It will likely do more.

18. 4) Pull fresh cash in :
 Simply put, India has been relying on foreign investors to
finance a current account deficit that’s been getting worse and
worse. And since foreign investors now want their money back,
India has got to find a way to cover the shortfall.
 The Indian government could even tap those folks for a low-
cost loan by launching a so-called “diaspora bond.”
 The country is also reportedly considering allowing state-run
industries to issue so-called quasi-sovereign bonds as a way to
raise cash. And of course, there are always exports. But don’t
hold your breath—exports have been stagnant for a while now.

19. None of this is rocket science. This is the long-established
playbook for central bankers in fighting off a currency crisis.
But that doesn’t mean it always works.
If it doesn’t, India will have little choice but to go back to the
International Monetary Fund for a loan. That’d be a painful
replay of the loans India was forced to take from the IMF back
in 1991. And it’d be humiliating for a country that was
supposed to be a leader of a new phase of global growth.
CONCLUSION

20. BIBLIOGRAPHY
 OLYMPIC HURDLES,THE WEEK
MAGAZINE,SEPETEMBER 1 2013
 ECONOMICS,PAUL A SAMUELSON & WILLIAM
D NORDHAUS , SEPETEMBER 2008