Question: Controlling the money supply is sometimes advocated as an appropriate
Controlling the money supply is sometimes advocated as an appropriate policy for controlling inflation. What implications do different assumptions about the relationships between M and V, and M and Y, in the equation MV =PY have for the effectiveness of this policy?
Answer to relevant QuestionsWhy may an expansion of the money supply have a relatively small effect on national income? Why may any effect be hard to predict?Under what circumstances will (a) A rise in investment and (b) A rise in money supply cause a large rise in national income?What factors determine the effectiveness of discretionary fiscal policy?For what reasons might the long-run aggregate supply curve be (a) Vertical; (b) Upward sloping; (c) Downward sloping?If increased investment (using current technology) does not lead to increased long-run economic growth, does it bring any benefits?
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