The Heart of Monetary Economics: A Novel Diagram Depicting the Relationships Between Aggregate Monetary Variables

This work introduces the heart of monetary economics, a simple figure that contains more information than the Venn diagram that shows how the monetary base and money supply have currency in circulation as their intersection.A distinguishing feature of the heart is that it illustrates how the net amount of financial capital generated by depository institutions equals the difference between the money supply and the monetary base.As such, the figure may aid students learning about money creation.This work also points out a nearly identical figure that contains the same information as the heart.The paper also provides a proof that these two figures are the only two with their general shape consistent with the relationships they display.