from Econophile via, Zero Hedge:
If there is one thing we should have learned from recent data is that you can “juice” the economy by inserting more money into it because when the money works its way through the economy, certain economic data will become more positive.
This is not a difficult concept to grasp. For example, if in a hypothetical economy there is a $1 trillion money supply and then it is increased by, say, 10%, assuming that new money is spent in economic activities, GDP will ultimately rise more or less by 10% because GDP measures spending. More money equals more spending, thus higher GDP.
During this phase one might see manufacturing and consumption increase and even employment grow. This happened with QE1 and 2. However, one might ask, if money stimulus actually revives real economic growth, why did we need QE2? Of course this is the flaw in the above argument. It doesn’t work.
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