Emerging economies if the increase in money supply is not towards the production of goods that are future away from the production of consumer goods and the direction of increasing the money supply to factories and agriculture in a planned manner and plans that help increase the contribution of these two sectors to the gross domestic product at high rates. Also, increasing the money supply in small and medium-sized enterprises can reduce unemployment.

Dear Zouyene Sadek,

I have been researching this issue for many years. Based on the results of my research, I have shown that for several decades now, in many countries, within the framework of an active, interventionist, anti-crisis, anti-cyclical, pro-development economic policy, which attempts to activate economic processes and reduce the level of unemployment, not only specific instruments of a mild fiscal policy based on increasing the scale of subsidies from the state's public finance system and/or tax cuts are used, but also specific instruments of a mild monetary policy conducted by central banks. Despite the fact that in many countries the issue of separating the fiscal policy pursued by the government from the monetary policy pursued by central banks is regulated normatively, sometimes also in the Basic Law, i.e. in the Constitution, more and more often and on an increasing scale, monetary policy is no longer pursued only to care for the value of national money, but is also used to mitigate the effects of economic crises, to counteract financial crises and even to improve the situation on capital markets, including stock exchanges. The scale of this practice began to escalate strongly from the 1970s, i.e. from the abolition of gold parity by the Federal Reserve System in the USA, the development of derivatives, the increase in the scale of deregulation on financial markets, the development of commodity crises and the increase in the scale of destabilisation on financial markets, the increase in the frequency of financial and economic crises. A particularly large scale of anti-crisis, soft monetary policy and additional public financial assistance programmes created and applied occurred during the global financial crisis of 2008-2009 and then in the following years in order to limit the scale of development of the aforementioned crisis. Central banks such as the Federal Reserve Bank of the USA and the European Central Bank played a key role in this regard. In addition, also during the Pandemic Economic Crisis 2020 and other crises, central banks played an important role in terms of limiting the scale of development of crises and thus limiting the scale of downturn in the economy and limiting the scale of development of unemployment. This is also the time when the importance of ongoing research has increased, with the aim of clarifying whether the aforementioned active, benign, anti-crisis monetary policy has the effect of limiting the scale of financial and economic crises or whether it rather generates these crises? Analyses of specific monetary policies carried out by major central banks since the beginning of the 20th century show that there have been crises that were mitigated by the aforementioned benign monetary policy, but that there have also been crises whose origins are misguided monetary policies.

I have described this problematic in the following recent article of mine:

Comparisons of the monetary policy of the central banks of the Federal Reserve Bank and the European Central Bank and the National Bank of Poland

Chapter Comparisons of the monetary policy of the central banks of t...

I have written about the sources of the high inflation that occurred after the Covid-19 pandemic from 2021 onwards and the subsequent anti-inflationary monetary policy on the basis of the research carried out in my article below:

THE POSTCOVID RISE IN INFLATION: COINCIDENCE OR THE RESULT OF MISGUIDED, EXCESSIVELY INTERVENTIONIST AND MONETARIST ECONOMIC POLICIES

Article THE POSTCOVID RISE IN INFLATION: COINCIDENCE OR THE RESULT O...

On the subject of benign, synchronously conducted monetary policies during the 2008-2009 global financial crisis, I have written, among others, in the following articles:

Analysis of the effects of post-2008 anti-crisis mild monetary policy of the Federal Reserve Bank and the European Central Bank

Article Analysis of the effects of post-2008 anti-crisis mild moneta...

ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN CENTRAL BANK IN THE CONTEXT OF THE SECURITY OF THE EUROPEAN FINANCIAL SYSTEM

Article ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN C...

Thank you very much,

Best wishes,

I would like to invite you to scientific cooperation,

Dariusz Prokopowicz

The views of the economic analysis community differed regarding determining the role and interpretation of the nature of the relationship between money and economic activity variables. The circle of this debate between them expanded and is still ongoing even in academic research circles, as to whether money has a neutral or non-neutral role on output, employment, and reducing unemployment...etc. Classical monetary analysis settled on the fact that money is merely a means of exchange and a tool for calculating and settling payments. Thus, it remains neutral in its impact on the level of production and employment, and its impact remains only on the general level of prices, meaning that there is a separation between the monetary economy and the real economy.

Changes in the money supply can have a significant impact on unemployment rates in emerging economies. When the money supply increases, it typically leads to lower interest rates, making borrowing more affordable for businesses and consumers. This can stimulate economic activity, leading to increased production and job creation. However, in emerging economies, the relationship between money supply and unemployment can be complex. Rapid increases in the money supply may lead to inflation, eroding purchasing power and potentially discouraging investment. Additionally, structural issues such as lack of skilled labor, inadequate infrastructure, and weak institutions can limit the ability of increased money supply to translate into sustained job growth. Therefore, while an increase in the money supply can potentially reduce unemployment in emerging economies, the effect can be nuanced and depend on various factors, including the pace of the increase, the overall economic conditions, and the specific characteristics of the economy.

Changes in the money supply can significantly affect unemployment rates in emerging economies by influencing inflation, investment, and consumer spending. When the money supply increases, it can lower interest rates, making borrowing cheaper and encouraging businesses to invest and expand. This can lead to job creation and lower unemployment in the short term. However, if the money supply grows too rapidly, it can result in inflation, eroding purchasing power and destabilizing the economy. In contrast, a contraction in the money supply can raise interest rates, reduce investment and consumption, and potentially lead to higher unemployment due to slowed economic activity.

How Do Changes in Money Supply Affect Unemployment Rates in Emerging Economies?

In emerging economies, monetary policy plays a pivotal role in maintaining macroeconomic stability, stimulating growth, and influencing labor market dynamics. One of the key levers of monetary policy is the money supply, which refers to the total amount of money available in an economy at a given time. Changes in the money supply—through mechanisms such as central bank operations, reserve requirements, and credit availability—can have significant effects on unemployment rates, particularly in economies that are still developing institutional strength and financial depth.

1. Money Supply and Aggregate Demand

The primary channel through which changes in money supply affect unemployment is aggregate demand. An increase in the money supply typically leads to lower interest rates, which in turn encourages borrowing by businesses and consumers. For firms, lower borrowing costs stimulate investment in capital and expansion, often resulting in job creation. For consumers, increased spending leads to higher demand for goods and services, prompting businesses to hire more workers to meet the rising demand.

In contrast, a contraction of the money supply—often aimed at controlling inflation—raises interest rates, discourages borrowing, suppresses demand, and may lead to higher unemployment as businesses scale back operations.

2. Transmission Mechanism in Emerging Economies

While the theoretical link between money supply and employment is straightforward, the transmission mechanism in emerging economies is often weaker or less predictable due to several structural factors:

• Underdeveloped financial markets mean that changes in monetary base do not always translate effectively into credit creation.
• High levels of informality in labor markets can delay or distort the impact of monetary changes on recorded employment statistics.
• Limited access to banking services for a significant share of the population can dampen the expansionary effects of increased liquidity.

Therefore, while changes in money supply do influence unemployment in emerging economies, the magnitude and timing of the effect can vary significantly based on institutional and financial development.

3. Inflation and Monetary Credibility

One of the critical risks in expanding the money supply—especially in emerging economies—is inflation. If money supply growth outpaces the productive capacity of the economy, it can lead to demand-pull inflation. In turn, inflation can erode real incomes, reduce consumer purchasing power, and eventually dampen demand, leading to job losses.

Furthermore, in countries where monetary institutions lack credibility, rapid increases in money supply can trigger capital flight, currency depreciation, and inflation expectations—all of which undermine job creation efforts and can lead to stagflation (high inflation and high unemployment).

4. Short-Term vs. Long-Term Effects

In the short term, an expansionary monetary policy can reduce unemployment by boosting demand and stimulating production. However, in the long term, if money supply growth is not aligned with productivity gains and structural reforms, it can lead to macroeconomic imbalances and instability that hurt employment.

This underscores the importance of monetary discipline. For sustainable employment gains, money supply increases must be complemented by:

• Investment in infrastructure and skills,
• Stable inflation management, and
• Efficient financial intermediation that channels credit to productive sectors.

5. Empirical Evidence and Case Studies

Countries like India, Indonesia, and Brazil have shown that increases in money supply during economic slowdowns can support job creation in key sectors. For instance, during the global financial crisis and COVID-19 pandemic, central banks in emerging economies used monetary expansion and liquidity injections to support small and medium enterprises (SMEs), which are major sources of employment.

However, in countries with weaker institutions, such as Venezuela or Zimbabwe, excessive and uncontrolled money supply growth contributed to hyperinflation, economic collapse, and soaring unemployment—highlighting the importance of balance and credibility.

Conclusion

In emerging economies, changes in the money supply significantly influence unemployment rates, primarily through their impact on aggregate demand, investment, and credit availability. However, the relationship is context-dependent and influenced by the strength of financial institutions, inflation expectations, and the overall policy environment. While expanding the money supply can reduce unemployment in the short term, it must be implemented with caution and aligned with structural reforms to avoid long-term economic instability. Ultimately, for monetary policy to effectively address unemployment, it must be credible, targeted, and supported by complementary fiscal and development strategies.

In emerging economies, an increased money supply can temporarily reduce unemployment by stimulating demand and investment, but if not managed carefully, it may lead to inflation, currency depreciation, and loss of investor confidence, which can ultimately reverse employment gains and harm long-term stability.

In emerging economies, an increase in money supply can reduce unemployment in the short run by stimulating demand and investment, but if not managed carefully, it may also lead to inflationary pressures, currency depreciation, and ultimately erode real wages, limiting its long-term benefits.

An increase in money supply can reduce unemployment in emerging economies by stimulating demand, though it risks inflation and depends on how efficiently funds circulate in the real economy.