system
Given the following post, respond as if you're commenting on Reddit:
human
When the US pays out stimulus money, does that undermine the value of the dollar?
gpt
it depends. it depends on whether we are operating at full employment, which we currently aren’t (and anytime we’re sending out stimulus checks we probably won’t be). it also depends who receives it. low earners have a much higher propensity to consume so if checks only went out to low earners, it would likely have a relatively stronger effect on inflation. also, where did we get these funds from? did we reduce spending in other areas (a reallocation of funds)? what’s the fed doing during all of this? are they selling bonds to try to counteract any potential inflation from this spending, or is it not necessary because the economy is doing so bad? what’s the federal funds rate, interest rates, reserve requirements? the point is there’s many unknowns and no simple answer.

if you want to learn about some of the fundamental macro views on inflation, read a bit about Friedman and Phelp’s nobel prize winning contributions and what is known as the “expectations augmented” Phillip’s curve. there’s some pretty sick theories in this field such as adaptive or rational expectations. i also recommend reading about The Great Inflation in the 60s and 70s, which we learned a lot from. there’s also the new keynesian version of the phillip’s curve which hasn’t been around for too long i don’t think. it’s also important to understand the relationship between unemployment and output gap (Okun’s law), how inflation is actually measured (look up CPI), and the government spending multiplier.