Monetarist Policies (5): Effective Private Spending

What happens if the velocity of money is constant?

1. Variations ( or changes ) in total spending is effective ( do came about ) through changes in money supply;
2. The exixtence of less money available for loans to private consumers and investors; and
3. The exhuberance of more government spending implies ( denotes ) less private spending ; ( fiscal policy is ( becomes ) ineffective ).

What happens on a liquidity trap, where the potential velocity of money change?

1. Slow rate of spending occurs ( people likes to accumulate money balances );
2. In extreme cases, the velocity of money falls toward the zero level;
3. Predicative changes on monetary policy does not in effect , influence total spending; and
4. Increasing money balances to work ( in fiscal policy ) could possibly stimulate aggregate spending.