The effectiveness of monetary policy is an undecided issue.  It would seem from our equation of exchange that an increase in Money must cause an increase in GDP.  But only if we assume the Velocity of Money constant. 

What if instead, consumers and businesses were so afraid about the future that they hoarded every Dollar they were able to get their hands on.  Since these Dollars wouldn’t be spent but rather hidden beneath the mattress, the average number of times a Dollar is spent would decreases. 

So, it is possible that an increase in money, under certain circumstance, might cause a decrease in velocity.  If this were to happen, there may be no effect whatsoever on GDP.  Data from the 2001 and 2008 recessions suggest this may have exactly happened. 

And even if velocity were to remain constant, there’s no guarantee that the increase in GDP would be due to an increase in RGDP – that is an actual increase in the amount of goods and services being produced.  It’s possible that the largest impact might be on the prices of goods.  And so, an increase in the money supply lead only to inflation. 

Despite these questions, monetary policy remains the most commonly used tool for addressing the business cycle.  Therefore those interested in business, and particularly those interested in finance, spend a large portion of their energy studying the behavior and intentions of the Federal Reserve.