If the Federal Reserve increases the reserve requirement and velocity remains stable What will happen to nominal GDP and why?

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1234093

2026-04-28 14:01

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A significant increase in reserve requirements will reduce the lending of member banks resulting in a relatively smaller supply of M2 money.

Money can bought and sold repeatedly by each stock speculator throughout the day. Just look at the volume netted and cleared by stock speculators on a daily basis. Therefore velocity has no obvious unambiguous meaning outside of something like nominal GDP divided by money supply. Therefore by this definition a decrease in money supply must be countered with a decrease in GDP to keep velocity stable.

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