if a commodity is scarce, doesn’t it command a high price? Conversely when there is a plethora of a particular commodity, it’s value decreases doesn’t it?
So if we manufacture 2 Trillion pounds sterling, doesn’t that devalue our currency?
If businesses have a weaker unit of currency, don’t they have to put their prices up?
The net result is that our savings and income will effectively shrink.
Money Supply up shifts LM out, r2 achieved through multiplyer (intrest rate too low to appear on my diagram) but rises to r3. New equilibirum in IS/LM means Agg Demand (AD) shifts out, prices rises (inflation) to p4. Real money supply now decreases, so LM shifts back but because of wage stickiness, menu costs etc the labour market won’t respond perfectly. Result is higher employment (N4).
Combined with the increases in gov spending and the tax cuts (which should both shift IS out) it doesn’t seem like a bad plan (for getting us out of the mess we are in… whoevers fault it was).
Caveats: degree of wage/price stickiness, flex xchange rates, elasticites, ricardian equilvilance and effect on real wage rates unknown (nominal up but so are prices).
I am not an economics expert
Indeed