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Consider afinancial crisis where people stop spending money and hence velocity falls . In particular, suppose velocity falls by a factor of 1/2, =0.50 gV=0.50.

Consider afinancial crisis where people stop spending money and hencevelocity falls. In particular, suppose velocity falls by a factor of 1/2,

=0.50

gV=0.50. Suppose potential GDP remains growing at 2%. If the central bank still wants 2% inflation in the long run, by how much should it expand the money supply in this financial crisis?

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