Why did Friedman and the Monetarists believe that monetary misuse accompanied every severe recession every significant inflation over the past century?

Q: Critically analyze what facts determine the impact of an interest rate change? How effective is…

A: The amount of interest due every period, expressed as a percentage of the amount lent, deposited, or…

Q: How might the credibility of the Fed’s commitment to reduce inflation affect the sacrifice ratio?

A: Sacrifice ration is the number of percentage points of annual output lost in the process of reducing…

Q: What uncertainties does the federal reserve face in selecting the timing and tools of implementing…

A: The uncertainties that the Federal reserve face in selecting the timing and tool of implementing…

Q: n the simple monetary policy rule considered in Chapter 13, what role does the parameter m_bar…

A: Simple monetary policy rule: (Rt - r_bar) = m_bar * (πt - π_bar) Where πt is the actual inflation…

Q: increase real GDP in the short run, but not the long run.

A: Explanation: Now the Economy starts from the semipermanent equilibrium(full employment equilibrium).…

Q: How is a monetary policy rule helpful for understanding U.S. monetary policy?

A: The credit-control system adopted by the central bank of a country to achieve its macroeconomic…

Q: Which describes the difference between the Taylor rule and inflation targeting?     A) The…

A: Inflation targeting is a framework for conducting monetary policy that involves the central bank…

Q: Why would a central bank implement a monetary policy when the inflation level is higher than…

A: The economies tend to have many entities with them, all of which are concerned with performing…

Q: Expansionary monetary policy may prevent deep recessions with uncertain long-term consequences.…

A: Expansionary monetary policy: When a central bank raises money supply through an open market…

Q: What nonconventional monetary policies shift theaggregate demand curve, and how do they work?

A: Nonconventional monetary policy is a series of steps a central bank has taken to put a stop to an…

Q: How does rule based monetary policy help to overcome the time inconsistency problem? What is one…

A: Rule-based monetary strategy alludes to an arrangement wherein the central bank focuses on a…

Q: The use of monetary policy is highly debated among classical and Keynesian economists. Where do they…

A: Classical economics focuses on the idea that markets work best when left alone, without government…

Q: True or False? In an assigned reading, Milton Friedman indicated that he agreed with John Maynard…

A: Answer - "Thank you for submitting the questions.But, we are authorized to solve one question at a…

Q: employment and low inflation

A: The Phillips curve depicts the relationship between the inflation rate and unemployment rate. It…

Q: Suppose that the current inflation rate is at 9% and the unemployment rate is 3%. Given this data.…

A: Monetary policy is the policy that is used to control the money supply in an economy to maintain the…

Q: ompare the Keynesian and Monetarists theories. Describe why they disagree with each other over how…

A: Comparison between the Keynesian and Monetarists theories.   Factors Monetarist theories…

Q: The result of all the above is a “Great Recession.” Under a recession, output and incomes decrease,…

A: Monetary Policy involves the steps taken by Fed in order to control the money supply and rate of…

Q: “…monetary policy works on two principal economic variables: the aggregate supply of money in…

A: Difference in between the monetarist theory and Keynesian theory is that while Monetarist theory…

Q: In 1966, Milton Friedman wrote, as he often did, some memorable lines that have entered the lexicon…

A: Hyperinflation is the condition of very high and accelerating inflation. It destroys the purchasing…

Q: What do we mean by the Federal Reserve’s “targeted” inflation and unemployment rates?

A: Targeted inflation and unemployment rate are monetary phenomenon which are handled by the Federal…

Q: The monetary policy video showed that the "monetarists" are opposed to using monetary policy as a…

A: An economic theory that focuses on the effects of the macroeconomic factors of the supply of money…

Q: What did Friedman and Phelps argue about the effectiveness of monetary policies?     As long as…

A: The monetary policy in the economy is conducted by the central bank of the economy and the monetary…

Q: During the early months of the pandemic, the inflation rate fell well below the 2% target which…

A: Inflation refers to an increase in the general price level in an economy over the time. Inflation…

Q: Since the end of the Great Recession, interest rates have been at historic lows—in some cases, close…

A: The dramatic decrease in economic activity in the late 2000s was known as the Great Recession. One…

Q: Explain the difference between the Keynesian and the monetarist views on how an increase in the…

A: Keynesian economics emphasizes fiscal policy to control the business cycles in the economy. Keynes…

Q: Why does having a dual mandate complicate policy making at a central bank like the FED? Why do some…

A: Modern Monetary Policy: Modern monetary policy refers to the contemporary approaches, tools, and…

Q: n March and April 1980, inflation in the United States peaked at 14.6 percent. What did then-Fed…

A: During his first tenure, Volcker concentrated on lowering inflation and assuring the public that…

Q: According to Monetarists, what should the government do if unemployment is 4% and inflation is 12%?…

A: For monetarists, the best thing about the economy is to look at the supply chain and allow the…

Q: “…monetary policy works on two principal economic variables: the aggregate supply of money in…

A: The monetarist theory is refer to the economic concept  which would contend in the money supply in…

Q: How does inflation targeting help reduce the timeinconsistency problem of discretionary policy?

A: Inflation targeting refers to the setting up of the inflation rate target in the economy. The…

Q: Do Monetarists and Keynesians believe that inflation is always and everywhere a monetary phenomenon?…

A: Monetarists view: Monetarists argue that if the Money Supply rises faster than the rate of growth of…

Q: The United States Federal Reserve has two mandates when setting monetary policy - keep annual…

A: Govt policies: Sometimes the govt controls economic variables to increase or decrease the GDP to…

Q: In what ways might monetary policy be superior to fiscal policy? In what ways might it be inferior?

A: Fiscal policy is a government tool that influence output, employment and prices in the economy. A…

Q: The classical theory of inflation indicates that inflation is a monetary phenomenon. Why?

A: Classical theory is the economic theory which states that the economy is self-regulating and always…

Q: The Bank of Sweden inflation target is 2 % - which is a very common central bank goal. Why is it not…

A: Inflation rate refers to the general rise in the inflation rate. The inflation rate is worrisome for…

Q: Of the three policy tools that CBK can use to change the money supply, the one that does not affect…

A:

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.