Feb 21, 2015 | THE ECONOMY
“Money matters, beyond the impact on interest rates. But we don’t make any assumption about the stability of V (unlike traditional monetarists.) Money matters because of the “hot potato effect.” That is, the Fed determines the supply of base money and the public determines the real quantity of base money and the “Cambridge k,” which is the ratio of the base to [nominal GDP]. In the long run “k” moves independently of once-and-for-all changes in the base. That’s because once-and-for-all changes in the base have little or no effect on interest rates in the very long run.” Scott Sumner.
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