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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