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Money Aggregates, Debt, Pent-Up Demand, and Inflation: Evidence from WWII
The COVID-19 pandemic produced a massive decline in U.S. consumption in 2020 and swift fiscal and monetary responses. After growing at a rather steady 5 percent rate for decades, the moneysupply (M2) increased 25 percent over the past year alongside unprecedented fiscal support, raising some inflationary concerns. Concurrent with the reopening of the economy as vaccines roll out, this article derives some lessons from the U.S. experience during and after WWII. The debt-to-GDP ratio increased from 40 percent to 110 percent because of the war effort. Most of it was financed by Fed debt ...