Daily Archives: 11/24/2010
Steps through the way this hopefully would work (more detail in the link):
1. Expand the money supply, if the banks lend based on new reserves.
2. The additional money expands spending, if consumers don’t just hold larger money balances (more technically if the velocity of money doesn’t decline. If people just hold the money, this is sometimes know as liquidity trap.
3. The additional spending expands the nominal GDP.
4. The additional GDP is accompanied by a mix of inflation or expansion in real production, and jobs.
I think last step is the most problematic. At least some of our problem is that people aren’t looking for jobs in the right places. There are too many seeking jobs building houses, no one wants to buy, except as part of another speculative boom.