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If People Had More Money, They Would Spend It On Things

By Matthew Yglesias on July 13, 2011 at 3:14 pm

"If People Had More Money, They Would Spend It On Things"

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The Atlantic jobs “debate” continues as Ryan Avent notes that America would produce more real goods and services if people were spending more money, and people would spend more money if there was more money around to spend:

How can it do that? Quite easily, actually. To increase spending, the Fed needs only to increase the money in circulation. It can do this by creating dollars and using them to buy things: Treasury bonds, as it did on a modest scale with its quantitative easing (QE) programs, or other securities. As money in circulation rises, so too will the value of spending.

You could also accomplish this by reducing the interest paid on excess bank reserves. This rate, unlike the short-term treasury rate, can go below zero. This is a policy that has worked well in Sweden. Banks penalized for holding excess reserves will presumably lend to someone. Make the penalty large enough, and banks may even lend money at negative rates. Alternatively, they’ll just go out and get fancier office furniture. Either way, money gets spent.

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