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Consider the Quantity Theory of Money and the effectiveness of expansionary monetary policy in the United States.
Explain the equation of the Quantity Theory and all of the variables in it.
Assume the Classical position that both money velocity and real output are fixed. Analyze the effect of a 15% increase in the money supply (expansionary monetary policy) directed by the FED to address a recession. Explain the effect on the economy.
Assume the Monetarist position that says real output is fixed, but velocity is variable. Analyze the effect of a 15% increase in the money supply (expansionary monetary policy) directed by the FED to address a recession. Explain the effect on the economy, including what happens to velocity now that is is assumed to change. Explain.