Tag Archives: Short & Simple

It was mentioned (in part 2) that a currency-issuing government issues its currency in the act of spending. An implication of this is that a currency-issuing government does not need income in order to spend. We have also noted (in parts 5 and 9) that a household or business can spend independently of current income. They can do this either by drawing down past savings or through borrowing. Now, if we think about past savings, these are the result of saving in an earlier period. This...

We understand that, as a rule, total spending must equal total income (this was explained in part 4 of the series). But this raises a question. Is it spending that determines income or, instead, income that determines spending? At first glance, it might seem plausible that income determines spending. After all, when an individual household receives income, it will invariably spend some of it. If a member of the household receives a pay increase at work, the household will have more...