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America’s Inflation Debate Is Fundamentally Confused
- PaulHoule 5y agoThe old monetarist formula was [nominal GDP] = [money supply] (x) [velocity of money] Where nominal GDP is not adjusted for inflation: if the price level doubles but the production stays the same, nominal GDP doubles. Before governments took this formula seriously, the velocity of money was relatively constant. Whenever they've manipulated the money supply under the guidance of this formula, the velocity of money has been unstable -- particularly when wealth moves upwards in the economy, since rich people have a choice whether or not they will spend, invest, stuff money under a mattress, or buy government bonds.