On October 14th, Goldman Sachs proposed that the Federal Reserve aim to increase our GDP growth rate by 4.5% by increasing our money supply (by some calculated amount). As we learned in class, increasing the money supply will lower interest rates and allow more people to borrow money for business investments. However, Amity Shlaes of Bloomberg argues that this will be ineffective since the 4.5% growth rate is in nominal terms and does not account for inflation. She suggests that 3.5% of the growth will be due towards inflation and 1% of the growth due to the NGDP targeting. She also claims (contradicting what we have learned in class) that interest rates will actually increase after the NGDP targeting due to our expectations about inflation after the measure is enacted.
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