Model 13 · Economics
The Monetary Systems Machine
Two sets of rules for creating money, side by side.
Explanation level
How to use this model
How to use this modelWhat you see, what you can touch, what changes, what to take away
What am I looking at?
Two engineered monetary mechanisms on a synchronized timeline: a simplified fiat system on the left, Bitcoin's rule-based issuance on the right.
What can I touch?
- Change hypothetical supply growth
- Advance time
- Compare issuance mechanisms
- Explore purchasing-power assumptions
What happens when I change something?
Change the hypothetical growth rate, output or velocity and the fiat tank and its price gauge move differently, showing that money supply growth and price inflation are not the same thing.
What should I understand afterwards?
Explain that money can be created by discretionary decisions or by fixed rules.
Understand that monetary systems can follow different rules.
Two machines, two rulebooks.
After this you can
- Explain that money can be created by discretionary decisions or by fixed rules.
Experiment with hypothetical scenarios.
Change growth, advance time, compare.
Examine aggregates, issuance, inflation and assumptions.
Supply growth vs price inflation, quantity-theory caveats.
After this you can
- Distinguish money supply growth from consumer price inflation.
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Missions operate the model to complete them
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More money, flat prices
IntermediateCompletedShow that money supply growth and price inflation are different things.
Your task: In the hypothetical fiat machine, make the money supply grow while the price gauge shows no inflation.
Use: Change hypothetical supply growth · Explore purchasing-power assumptions
In the equation of exchange, the price level grows by the factor (1+g)(1+v)/(1+y), so inflation is that factor minus 1. Supply growth can be matched by output growth or offset by falling velocity, so supply growth alone does not determine inflation. This is a hypothetical identity, not a forecast.
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Tutor Ask a question, or let the tutor show you around
The tutor answers by explaining and, within the permissions below, by operating this model. Every change it makes is shown and listed, and you can undo it. It cannot run code, read your browser data or see anything secret. The page works the same without it.
What the tutor did
Common mix-ups
- Myth: Money supply growth equals price inflation.
- In fact: Prices also depend on output, demand for money and velocity.
- Myth: A fixed supply guarantees stable purchasing power.
- In fact: Purchasing power also depends on demand, adoption and the economy; it can rise or fall.
Concepts in this model
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