During the nine months following July 2008,the Fed doubled the monetary base and generated huge excess reserves within the commercial banking system.This policy increases the danger of

Question

Quizplus · Accepted Answer

Doubling the monetary base and generating huge excess reserves can lead to rapid growth of the money supply and inflation in the future. The excess reserves can be used by banks to create new loans and expand the money supply. However, if this expansion is not matched by a corresponding increase in real output, it can result in inflation. This is a potential danger of the policy.

During the Nine Months Following July 2008,the Fed Doubled the Monetary