When information is exchanged without much limitation, investment and lending become more secure. Therefore, interest rates should be approaching zero, because there are fewer risks. If interest rates became permanently zero, what would happen to the markets? The velocity of money transfer would become greater; more importantly, the concept of cash would disappear. When interest rates are zero, M0, M1, M2, M3 and M4 are all the same. According to the function, VM=PT, when V increases and M stays constant, then at least one of P and T will increase. (V is the velocity of money for all transactions, T is the aggregate real value of transactions in a given time, P is the price level, M is the total nominal amount of money in circulation on average in the economy). Therefore, when interest rates become permanently zero, we would have a high inflation or an increase if the aggregate real value of transactions. To avoid hyperinflation, it is important to ensure supply to match up the market demand.
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