How is the amount of the U.S dollar determined?

Question

How is the amount of the U.S dollar determined?

Answer 1

Depends what you mean by amount

The exchange rate is determined in the currency market

The value of the dollar is determined when everybody sets prices according to their costs

Answer 2

Using the monetary exchange equation:

MV = PY

Where M = Money Supply, V = Turnover Rate of Money (known as Velocity), P = Price, Y = Output, ==> PY = Nominal Output

From the equation, it is clear that the money supply, i.e. the amount of the US dollar is determine by price, output and velocity of money.

From the Multiple expansion of money equation,

M = mmH

Where M = Money supply, mm = Money multiplier, H = Monetary base (or high powered money)

mm = (1+cu)/(re+cu)

where cu = cash-deposit ratio

            re = reserve-deposit ratio

Clearly, from the equation, money supply depends on the cash-deposit ratio and the reserve-deposit ratio, as well, which implies it essentially depends on required reserve ratio fixed by the central bank as well.