In the short term, it is like this: as the money supply increases, the LM curve shifts to the right → the interest rate decreases → the total output increases, and it is greater than the natural rate of output → the price rises. In the long run, the price rises → the real money balance M/P demand increases → the interest rate rises → the LM curve shifts to the left → the production declines, and it returns to the "output natural rate level". So in the short term, both output and price will rise.

For a long time, the output remained unchanged, but the price rose. The increase of money supply can only maintain the original total output level and interest rate level for a long time. This situation is called "currency neutrality", that is, the increase of money supply will lead to the increase of price level in the same proportion without changing the actual money quantity m/p.

The main contents of money supply include: the division of money levels; The process of money creation; Determinants of money supply, etc. In the modern market economy, the scope and form of currency circulation are constantly expanding, and cash and demand deposits are generally considered as money. Time deposits and some credit instruments that can be converted into cash at any time (such as government bonds, life insurance policies and credit cards) are also widely regarded as monetary.

It is generally believed that the monetary level can be divided as follows:

M 1= cash+demand deposit+traveler's check+other check deposit;

M2=M 1+ small time deposit+savings deposit+retail money market * * * same fund;

M3=M2+ other financial assets.

The process of money creation (supply) refers to the process that banks create money through their money management activities, including the process that commercial banks supply money to the circulation field through the derivative deposit mechanism and the process that the central bank affects the money supply by adjusting the amount of base money.

The factors that determine the money supply include the central bank's increasing money issuance, the central bank's adjustment of the amount of funds available to commercial banks, the ability of commercial banks to derive funds, economic development, and the money demand of enterprises and residents. Money supply can also be divided into two forms: nominal money supply expressed in monetary units and actual money supply expressed in goods and services that money in circulation can buy.