Question

Here is an excerpt from a recent article about the economy:
For some economists, the danger of inflation starts with the reckless strategy
of the Federal Reserve to print a massive amount of money out of thin air in
an attempt to stimulate the economy. These funds haven’t made it into the
markets and the economy yet, but it is a mathematical certainty that once
the this money passes through the reserves and hits the markets, inflation
will increase dramatically.
Use your knowledge of the money supply, inflation and the
Federal Reserve System to explain briefly what these
economists are talking about. What do they mean by
“mathematical certainty”?

Answer 1

High level money supply leads to inflation in the economy. If the Federal Reserve plan to increase the money supply through raising the printing money rate. There is a huge amount of money printed by central bank and circulate in the economy will reduce the value of currency. This leads to large rise in the deficit in Federal deficit. The price will rise with respect to rise in the cost. Money supply is the summation of currency in circulation and demand deposits. This high level money supply induces the consumption pattern and the labour becomes substituted towards more leisure than work. This will discourage the productivity in the economy and the total production level. There is a loss of reserves from the banks and they tried to hold only short term securities and other liquid assets. In bond market also there is high level purchase of the securities. Rising money supply leads to these negative problems. On the other hand, this expansionary monetary policy will help the under developed countries. Country like US adoption of these policies will affect its economic stability and growth. This will leads to liquidity tarp in the financial market and will not help to regain the powers. So most of the economists were against these types of policies. The high flow of money definitely leads to high inflation rate.
Mathematical certainty shows that something will happen which is known by the people. The people and policy makers were known about the result of a programme which is going to implement. In US economy, the policy makers we aware that the inflation will occur in the economy with respect to rise in money supply. But they will implement expansionary monetary policy. Before the implementation the reality is known by the implementing sector.