a)
Business cycles are associated with which fluctuation according to monetarism.
a)
Explanation of Solution
According to the monetarist, the most important factors affecting the rate of economic development and the behavior of the business cycle are fluctuations in the money supply. There are fluctuations in the supply of money in this case because it considers velocity to be relatively steady, which suggests that the money supply is mostly responsible for determining nominal income.
Introduction: The main aim of
b)
Whether monetarism advocates discretionary fiscal policy and discretionary monetary policy.
b)
Explanation of Solution
No, both discretionary monetary and fiscal policies are not promoted by monetarism because discretionary powers of monetarism can destabilize the economy. Moreover, monetarism can also make a wrong estimate of the importance of economic slack in a country at a particular time.
Introduction: The main aim of monetary policy is to control the supply of money in an economy to achieve the targeted economic growth. And according to monetarists, the money supply is the large source that guides the economic development or growth in the country.
c)
What monetary policy is suggested by monetarism?
c)
Explanation of Solution
The amount of money in the economy is adjusted through monetary policy which is one of the tools available in the economy and is used by the government to influence the overall functioning of the economy. According to monetarists, the best way to achieve monetary policy goals is to focus on the rate at which the money supply is expanding. Therefore, according to monetarism, the best monetary policy is the monetary policy rule that maintains the nominal income target.
Introduction: The main aim of monetary policy is to control the supply of money in an economy to achieve the targeted economic growth. And according to monetarists, the money supply is the large source that guides the economic development or growth in the country.
d)
The velocity equation and what each letter in the equation stands for?
d)
Explanation of Solution
The following velocity equation can use to explain monetarism:
Here, each letter in the statement stands for
M is the money supply,
V = velocity of money,
P = aggregate price level and
Y = real
Introduction: The main aim of monetary policy is to control the supply of money in an economy to achieve the targeted economic growth. And according to monetarists, the money supply is the large source that guides the economic development or growth in the country.
e)
The velocity equation’s used to explain the major conclusion of monetarism.
e)
Explanation of Solution
The velocity equation is used to explain the major conclusion of monetarism as it indicates that Since V (velocity of money) is stable, a consistent increase in M (money supply) will result in a consistent increase in gross domestic product.
Introduction: The main aim of monetary policy is to control the supply of money in an economy to achieve the targeted economic growth. And according to monetarists, the money supply is the large source that guides the economic development or growth in the country.
Chapter 35 Solutions
Krugman's Economics For The Ap® Course
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education