The Free Market Center
The Free Market Center
As I did in the previous models, I have provided for this model a summary of the balances after each transaction.
| Beginning | Transaction #1 | Transaction #2 | Transaction #3 | Transaction #4 | |
|---|---|---|---|---|---|
| Beginning Balances | Grower borrows $1,000 | Grower buys corn seed for $1,000 | Grower sells seed to dealer for $1,500 | Grower repays loan: $1,000 principal + $175 interest |
The quantity of money does, in fact, expand during the period in which the loan from the bank to the seed grower remains outstanding. But note—and this is the important part—when the borrower repays the loan with interest, the quantity of money does not increase; the quantity of money returns to the former level.