Econ 1b Lecture 18

Econ 1b Lecture 18 - Econ1bLecture18

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Econ 1b Lecture 18 18:01 - Download the brief Economist article Decoding money supply data  The quantity equation of money - MV = PY V is difficult for policymakers to affect  - Over long periods of time, real GDP is determined by trends in L,K and  technology  We can think of these as determinants of “aggregate supply” - Increases in M may stimulate the economy (increase Y) for a time, but will  eventually create inflation  M =money supply  V =“velocity” of money  P =price level (GDP deflator)  Y =real GDP Lesson/Extensions: Monetary policy aimed at “stimulating” the economy can end up creating  inflation Prominent economists are divided about the wisdom of “quantitative easing”  When do the inflationary pressure begin? o When people and firms can see through the Central Bank’s actions o When the economy regains health (no longer a shortfall in aggregate  demand) We’d predict central banks to pursue different policies if inflation were the 
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This note was uploaded on 05/11/2011 for the course ECON 1B taught by Professor Boskin during the Spring '09 term at Stanford.

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Econ 1b Lecture 18 - Econ1bLecture18

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