Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 14, Problem 4WNG
(a)
To determine
The
(b)
To determine
The
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Students have asked these similar questions
True or False? In an assigned reading, Milton
Friedman indicated that he agreed with John
Maynard Keynes's explanation of the causes of
the Great Depression.
True
False
As discussed in class, which of the following was
argued by monetarists of the 1970s?
in a free market economy, central banks
can never effectively manipulate money
supply, because lending activity is subject
to rapid changes
an expansion of the money supply that is
less than the growth of output during the
same period will generally result in
deflation
O effects of changes in money supply are
seen in output before they are seen in
prices
central banks should focus on minimizing
the legal interest rates paid to depositors,
as ensuring the safety of banks was the
most important goal
In one version of the monetarist model, we said that the velocity of money, V, is treated as constant (as an approximation of reality). Also, recall that we said monetarists assume that the short-run Aggregate Supply curve is upward sloping (i.e., real GDP, Q, is not fixed in the short run), but the Long-run Aggregate Supply curve is vertical (as in our self-regulating model). Consider the equation of exchange,
MV≡PQ
An increase in government spending would
Group of answer choices
A) cause a recession.
B) increase real GDP in the long run, but not the short run.
C) cause inflation in the short run.
D) not increase real GDP in the short or long run because there would be complete crowding out.
E) increase real GDP in the short run, but not the long run.
In one version of the monetarist model, we said that the velocity of money, V, is treated as constant (as an approximation of reality). Also, recall that we said monetarists assume that the short-run Aggregate Supply curve is upward sloping (i.e., real GDP, Q, is not fixed in the short run), but the Long-run Aggregate Supply curve is vertical (as in our self-regulating model). Consider the equation of exchange,
MV≡PQ
(with V treated as fixed). Under the assumptions in this question,
Group of answer choices
A) none of the other options.
B) if the money supply (M) were to increase by x%, the aggregate price level (P) would increase by x%.
C) if the money supply (M) were to increase by x%, real GDP would increase by x%.
D) if the money supply (M) were to increase by x%, the aggregate price level (P) would increase by more than x%.
E) if the money supply (M) were to increase by x%, nominal GDP would increase by x%.
Chapter 14 Solutions
Macroeconomics (Book Only)
Ch. 14.1 - Prob. 1STCh. 14.1 - Prob. 2STCh. 14.1 - Prob. 3STCh. 14.2 - Prob. 1STCh. 14.2 - Prob. 2STCh. 14.3 - Prob. 1STCh. 14.3 - Prob. 2STCh. 14.3 - Prob. 3STCh. 14.4 - Prob. 1STCh. 14.4 - Prob. 2ST
Ch. 14.4 - Prob. 3STCh. 14 - Prob. 1VQPCh. 14 - Prob. 2VQPCh. 14 - Prob. 3VQPCh. 14 - Prob. 4VQPCh. 14 - Prob. 5VQPCh. 14 - Prob. 1QPCh. 14 - Prob. 2QPCh. 14 - Prob. 3QPCh. 14 - Prob. 4QPCh. 14 - Prob. 5QPCh. 14 - Prob. 6QPCh. 14 - Prob. 7QPCh. 14 - Prob. 8QPCh. 14 - Prob. 9QPCh. 14 - Prob. 10QPCh. 14 - Prob. 11QPCh. 14 - Prob. 12QPCh. 14 - Prob. 13QPCh. 14 - Prob. 14QPCh. 14 - Prob. 15QPCh. 14 - Prob. 16QPCh. 14 - Prob. 17QPCh. 14 - Prob. 18QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNG
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Similar questions
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- The natural rate of unemployment (NRU) is the long-run equilibrium rate of unemployment within the monetarist macroeconomic model. The NRU depends on which of the following? (a) The structure of the economy and in particular the level of aggregate supply; (b) The structure of the economy and in particular the level of aggregate demand; (c) The structure of the economy and in particular the institutions within it; (d) The structure of the economy and in particular the price of oil.arrow_forwardDo Monetarists and Keynesians believe that inflation is always and everywhere a monetary phenomenon? Explain your position with the aid of diagram(s).arrow_forwardWhich of the following is consistent with the monetarist view? Select one: A. A reduction in taxes will leave the value of real output unaffected B. Interest rates may be affected by increases in G or reductions in T C. Changes in M may cause changes in P in the long run. D. Monetary policy should be used to correct a shortfall in real outputarrow_forward
- Suppose that the money supply and the nominal GDP for a hypothetical economy are $96 billion and $336 billion, respectively. What is the velocity of money? How will households and businesses react if the central bank reduces the money supply by $20 billion? By how much will nominal GDP have to fall to restore equilibrium, according to the monetarist perspective?arrow_forwardThe monetarist emphasis the inherent stability of the country in the long-run. They also further acknowledge that monetary and fiscal policy could have an impact on the short-run. In the long run, no large-scale government involvement is necessary since the economy is self-stabilising. Explain this statement which is based on six (6) classical roots and indicate which of them apply to the monetarist approach.arrow_forwardIf the economy has rational expectations and the model is sticky price model. Could you explain why the following statement true in macroeconomics?arrow_forward
- “Monetary policy is the macroeconomic policy laid down by the central bank of an economy.”In terms of the above statement, explain how monetary policy can be used to combat inflationarrow_forwardBoblandia produces no oil. It starts at potential GDP with inflation equal to the Central Bank's inflation target. Boblandia then sees a significant increase in the price of oil. Which of the following is true (according to our models) if the Central Bank engages in inflation targeting? The Central Bank will enact expansionary monetary policy. This action will put upward pressure on read GDP. The Central Bank will enact expansionary monetary policy. This action will put downward pressure on read GDP. The Central Bank will enact contractionary monetary policy. This action will put upward pressure on read GDP. The Central Bank will enact contractionary monetary policy. This action will put downward pressure on read GDP.arrow_forwardAssume that an economy is experiencing an economic contraction and the government decides to reduce taxes and increase government spending to stimulate the economy. By the way, Central Bank keeps money supply constant. i) Evaluate the effect of this policy on the a) Interest Rate , b)Money Demand (in the SHORT-RUN.) Explain and show your answer on the graph. ii)Evaluate the effect of this policy on output and price Level (in the LONG-RUN.) Explain and show your answer on the graph. Note : In figures, please label the axis and show the changes on the graphs using arrows.arrow_forward
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