True or false 1. Between July 2008 and March 2010, the monetary base increased by over 135%. This increase was consistent with the FOMC policy trying to reduce inflation from 6% to the target rate of 2%. 2. MV = PQ Money is the supply of Money V is the velocity of money P is the average price level of goods and services in the economy Q is the output of goods and services in the economy. Assume that the equation MV = PQ is a valid relationship that explains the relationship of the four variables. During COVID Q dropped as sectors of the economy shut down. We know the Fed increased the supply of M through open market purchases. Let’s assume that V did not change. According to the relationship MV =PQ the drop in Q and the increase in M with V constant had to lead to an increase in P.
True or false
1. Between July 2008 and March 2010, the monetary base increased by over 135%. This increase was consistent with the FOMC policy trying to reduce inflation from 6% to the target rate of 2%.
2. MV = PQ
Money is the supply of Money
V is the velocity of money
P is the average price level of goods and services in the economy
Q is the output of goods and services in the economy.
Assume that the equation MV = PQ is a valid relationship that explains the relationship of the four variables.
During COVID Q dropped as sectors of the economy shut down. We know the Fed increased the supply of M through open market purchases. Let’s assume that V did not change. According to the relationship MV =PQ the drop in Q and the increase in M with V constant had to lead to an increase in P.
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