### How well quantity theory of money predict effect of increase

##### Reference no: EM131197972

Banks and savings and loans were allowed to issue NOW accounts nationwide in 1981. An unexpected result was that the relationship between the growth of M1 and GDP broke down. The reason was that customers of depository institutions transferred funds from savings accounts, which are part of M2, into interest-bearing NOW accounts, which are part of M1. The Fed stopped using the growth of M1 as a major policy variable for monetary policy in 1982. Shortly thereafter in 1987, the Fed no longer set growth targets for M1.

In the early 1990s, the growth rate of M2 and a fairly strong relationship between it and GDP began to break down. What happened is that some holders of savings and time deposits moved those funds into mutual funds. M2 decreased but economic activity did not. The upshot was that the Fed could not rely on the past historical relationship between M2 and GDP.

If the relationship between the money supply and the level of economic activity is not predictable using either M1 or M2, what can you say about how well the quantity theory of money predicts the effect of an increase in the money supply on the level of GDP during a recession? What do you think is the explanation?

### Previous Q& A

#### Which is true about an integrity-based culture

Which of the following is true about an integrity-based culture? Which of the following cultures will empower legal counsel and audit offices to mandate and to monitor conformity with the law and with internal codes?

#### Procedure for a healthcare organization

Could someone help me find a listing of expenses by diagnosis or by procedure for a healthcare organization? I have tried to google but could not find anything.

#### Marginal rate of substitution function

For each of the following utility functions, find the marginal rate of substitution function, MRS, and plot the indifference curve for which the consumer reaches a utility level of U = 10.

#### By how much would total demand fall

If all firms raised their prices by 5 percent, by how much would total demand fall?- What is the price elasticity if a single firm raises its price with other firms' prices unchanged?

#### School officials conclude that great majority of parents

Flawed reasoning. Identify the flaw in reasoning in the following scenarios. Explain what the individuals in the study should have done differently if they wanted to make such strong conclusions. Based on these results, the school officials conclude ..

#### Compute the population size that is compatible

Compute the population size that is compatible with the maximum sustainable yield. What would be the size of the annual catch if the population were to be sustained at this level?

#### Calculation of component values

Assessment Title: Lab Report - 555 timer with filter. Design: PWM design- Give reasons for the specific design presented and used and Calculation details of frequency, duty cycle, and component values. Filter design - Calculation of component values

#### Estimate the cost of a 40-kw unit of the same general design

Estimate the cost of a 40-kW unit of the same general design. Include the cost of the \$18,000 pre compressor.

#### Clear-cut versus the value of sustainable management policy

Consider a forest with 100,000 tons of standing timber and a growth rate of 5,000 tons of biomass per year. At a price of \$100 per ton, what is the value of the forest if it is clear-cut versus the value of a sustainable management policy in which..

#### Four primary elements described in definition of auditing

What are the four primary elements described in the definition of auditing?

### Similar Q& A

#### Q1 assume australias unemployment rate began to rise and

q1. assume australias unemployment rate began to rise and the government passed an investment tax credit to help

#### Sell their products to other businesses to meet new demand

Can you think of another situation similar to the LeBron effect in which derived demand was created by something that happened in the external environment—something that caused other companies to sell their products to other businesses to meet new de..

#### Price increase makes the agent worse off

Previously, we have considered agents whose income is fixed independently of prices. For this problem, consider instead an agent whose income comes from selling his endowment omega, where omega_1 > 0 and omega_2 > 0. Give an example where this price ..

#### Explain how the raising of short-term interest rates

Explain how the raising of short-term interest rates would affect all of the following in the United States: the inflation rate, the unemployment rate, the value of the U.S. dollar, net exports, and U.S. stock markets. Include at least one well-label..

#### Plants flowers in her yard to supply a local florist

Jill plants flowers in her yard to supply a local florist. Her neighbor enjoys the flowers. Therefore: Question 3 options: Jill should stop planting flowers because her neighbor does not pay for the benefit he gets. Jill should not plant flowers beca..

#### Banks capital to risk-weighted asset ratio equals

Continuing with the modified balance sheet with \$40 million in Level 3 assets, assume the bank issues an additional \$3 million in stock and sells \$20 million of its Level 3 assets for cash through the government's troubled asset relief (TALF) program..

#### Elasticity conditions

Increasing the minimum wage will result in a decrease in employment for workers who now earn less than the new minimum wage.

#### Substitutability between domestic and foreign bonds

Using graphs, show how you would establish the following proposition: " In a small open economy operating a fixed exchange rate, in which domestic and foreign bonds are imperfect substitutes, in the absence of sterilization the effect/ of an increase..

#### Firms enter monopolistically competitive industry

Other things equal, if more firms enter a monopolistically competitive industry:

#### The blue dragon restaurant

The Blue Dragon Restaurant is a new Chinese Restaurant in town. As the only Chinese restaurant in the area, it faces the following daily demand curve:

#### Dynamic pricing affect ticket sales-total revenue and profit

How does Ticketmaster's "dynamic pricing" affect ticket sales, total revenue and profit? Does Ticketmaster provide a valuable service, or is it a necessary evil to purchasers of event tickets?

#### Perfectly competitive industry is initially in a short-run

A perfectly competitive industry is initially in a short-run equilibrium in which all firms are earning zero economic profits