** US nominal GDP vs total system liquidity A hypothesis: Nominal GDP growth is essentially a monetary phenomenon. Assume the general saving rate and import/export is fixed. Note, it is here assumed that a change in government spending is a change in the general saving rate. Even increased productivity and produce will not cause a change in nominal GDP under these assumtions. ** Consider the attached graph of nominal GDP vs system liquidity (proxied by M3). It seems like nominal GDP is a direct function of total liquidity. Data source: https://fred.stlouisfed.org/series/GDP https://fred.stlouisfed.org/series/MABMM301USM189S Note on M3 and bank credit: M3 is particularly useful for understanding how credit creation (e.g., bank loans and other credit instruments) impacts the economy. Banks create money through lending, thus should be included when considering money expansion. Bank loans or large deposits contribute to M3, but these are not included in narrower measures like M1 or M2, which focus more on highly liquid assets. Discontinuation of M3 Reporting: In 2006, the U.S. Federal Reserve stopped publishing official M3 data, arguing that it didn't provide significant additional information over M2. However, many economists and financial analysts still track M3 (or similar measures) for a broader understanding of the money supply and economic conditions.
