4. The U.S. Federal Reserve responded to the 2020 COVID-19 lockdowns by imple- menting an expansionary monetary policy, causing M2 money supply to rise from $15.33 trillion in December 2019 to $18.3 trillion in July 2020. Over the same period, real GDP fell by 5.1 percent. (b) Why would you not expect inflation to be immediate, following the monetary ex- pansion? 5. Inflation can cause increased wealth inequality through the Cantillion Effect. Essentially, this means that expansionary monetary policy benefits those who are initially given new money (usually those who are rich and well-connected), while the rest of the population suffers the effects of inflation. Using the quantity theory of money, explain why this is the case.
4. The U.S. Federal Reserve responded to the 2020 COVID-19 lockdowns by imple-
menting an expansionary
(b) Why would you not expect inflation to be immediate, following the monetary ex-
pansion?
5. Inflation can cause increased wealth inequality through the Cantillion Effect. Essentially, this means that expansionary monetary policy benefits those who are initially given new money (usually those who are rich and well-connected), while the rest of the population suffers the effects of inflation. Using the quantity theory of money, explain why this is the case.
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