What happened when the Federal Reserve limited the money supply?

1 Answer
Sim W.
Feb 13, 2017

Money supply contraction causes deflation.

Explanation:

The basis in monetary theory is that when the money supply is increased, it triggers inflation whereas when this latter is limited, inflationi is limited as well. This theory was applied by Paul Volcker after he became chairman of the Federal Reserve in 1979 until 1987. Milton Friedman had been a mjor inspiration when it comes to controling the money supply to thwart inflation.

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