Paul Krugman

@paulkrugman ↗

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Last Checked Dec. 10, 2021

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Tue Oct 26 19:16:22 +0000 2021

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Paul Krugman @paulkrugman

And when M0 doesn't affect GDP, a rise in M0 will, as a matter of arithmetic, reduce the ratio of GDP to M0 — velocity. But it makes no sense to focus on that ratio 8/ — PolitiTweet.org

Posted Oct. 26, 2021

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Paul Krugman @paulkrugman

That's why we call it a liquidity trap. Normal monetary policy becomes irrelevant. Huge increases in M0 had basically no effect on GDP. I'll get into slight complications in a second, but that's the key insight 7/ — PolitiTweet.org

Posted Oct. 26, 2021

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Paul Krugman @paulkrugman

Think of two gears that normally mesh with each other, but are currently separated. If we spin gear A faster and nothing happens to gear B, would it make sense to say that the gearing ratio has declined? No, they're just spinning independently 9/ — PolitiTweet.org

Posted Oct. 26, 2021