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Reddaway, Third problem:The average level of retail prices in 1997 will exceed the average for 1996 by a % equal to the 'excess money creation' in 1995, ie the % rise in sterling M4 between the end of 1994 and the end of 1995, minus the % rise in real GDP between 1994 and 1995.

Keynes said that moeny affects prices, but in longterm. But Smog, editor of Times, said the lag is only 2 years.

But the figguers he produced estimated the thing only on average worked out.

Object: we need

1.      more years than 65-75

2.      Analysis for each individual year

data mining - looking for years that fit the theory.

do not introduce into the theory the latest figgures as they have errors.

lets now take a longer period

Average predicted was106, actual 8,4 so the aerage is alright, buut the individual years increase the discrepancy further.

Average is not too bad as the money gdp ratioover a long term is a function of ms and p, p affects alsso the ms and we need equilibrium

banks although resrtrictimg their ms find other ways out.

If hat prediction was used in policy i led to inflation.

Tchatcer goverment caused a slump as their only weapon was interes rates. they were rised, that lead to the appreciation of pounf.

Banks wanted to lend out to people. they started paying interest on current account. So circulation of money through the 80s rose substantially. they did not rise prices as people were holding money voluntarely.

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