1. Does the Money Supply Matter?
Anderson, Ch. 22

2. Important Concepts MZM Velocity of Money Money with zero maturity
In between M1 and M2
Velocity of Money
Number of times each year money is spent
M2/GDP

3. Important Concepts Monetarists Equation of Exchange
revival of classical principles
Money supply doesn’t affect GDP
Money neutrality
Equation of Exchange
Money supply x velocity = price level x output
MV = PQ

4. Important Concepts Quantity Theory of Money Monetary Rule
Monetarist belief
Velocity of money and output are both fixed
Therefore, increasing money supply only results in inflation
Monetary Rule
Monetarist belief that the Fed should target growth in money supply to growth of GDP

5. Important Concepts Keynesian beliefs Phillips relationship
Monetary policy can counter inflation
Fiscal policy can counter unemployment
Phillips relationship
Unemployment and inflation move in opposite directions
Stagflation counters this belief

6. Important Concepts Rational expectations Supply-side economics
The belief that businesses will anticipate government policy and therefore act in ways to counter it (shifting the supply curve)
Supply-side economics
The belief that policy can shift aggregate supply through tax cuts
Claims of job growth and increased government revenue largely discredited

7. Important Concepts Neo-Keynesian Economics
Return to belief that “sticky wages” and other prices prevent the economy from self-adjustment
Reject rational expectations argument
Firms can’t easily adjust costs