Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 14, Problem 7QP
To determine
Money supply and real GDP.
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Check out a sample textbook solutionStudents have asked these similar questions
According to Monetarists, what should the government do if unemployment is 4% and inflation is 12%?
Select one:
a. Decrease the supply of money
b. Decrease government spending
c. Raise taxes
d. Do nothing
e. Lower interest rates
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
Milton Friedman, the leader for Monetarism had proposed several important arguments regarding the implementation of Monetary Policy. The arguments were listed as:
Proposition 1: Monetary Policy has powerful short-run effects on the real economy. In the long run, however, changes in the money supply have their primary effect on the price level.
Proposition 2: Despite the powerful short-run effect of money on the economy, there is little scope for using Monetary Policy actively to try to smooth business cycle.
Proposition 3: Even if there is some scope for using Monetary Policy to smooth business cycles, the Central Bank (the Federal Reserve) cannot be relied on to do so effectively.
Proposition 4: The Central Bank (the Federal Reserve) should choose a specific monetary aggregate (such as M1 or M2) and commit itself to making that aggregate grow at a fixed percentage rate, year in and year out.
Keynesians economists’ response to the above propositions with this statement:
“Monetary…
Chapter 14 Solutions
Macroeconomics
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. 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. 19QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNGCh. 14 - Prob. 7WNGCh. 14 - Prob. 8WNG
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Similar questions
- Why did Friedman and the Monetarists believe that monetary misuse accompanied every severe recession every significant inflation over the past century?arrow_forwardthe government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year. what happened to prices?arrow_forwardExplain the monetaey policyarrow_forward
- Which of these is an alternative to monetary policy and aims to reduce inflation? reduce the money supply raise government purchases reduce taxes increase taxesarrow_forwardThere was a temporary increase in the price of oil. Why does an increase in price of oil pose a dilemma for the monetary authority (Fed)?arrow_forwardA problem that the Fed faces when it attempts to control the money supply is that the Fed can only control excess reserves but not total reserves. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. the Fed does not control the amount of money that households choose to hold as deposits in banks.arrow_forward
- Why do prices rise when the government prints too much money?arrow_forwardSuppose that the money supply and the nominal GDP are 100 billion and 500 billion respectively. If the central bank reducess the money supply by 10 billion, by how much will nominal GDP have to fall to restore equilibrium, according to the monetarist perspective.arrow_forwardWhat do monetarists predict will happen in the short run and in the long run as a result of each of the following? (In each case, assume the economy is currently in long-run equilibrium).(a) Velocity rises. (b) Velocity falls.(c) The money supply rises. (d) The money supply falls.arrow_forward
- Monetarists differ from Classical economists in their view of money in that monetarists believe: (a) The velocity of money is relatively constant over time (b) Prices are not influenced by real GDP (c) Prices are not influenced by the money supply (d) The level of unemployment is directly related to the money supply (e) The velocity of money varies over timearrow_forwardWhich of the following is a position held by monetarists? Changes in the velocity of money are unpredictable. Aggregate demand depends on money velocity but not on the money supply. The economy is unstable; wages and prices are inflexible. The short-run aggregate supply curve slopes upward. Initially, the economy is in long-term equilibrium. Suppose there is an increase in velocity-that is, there is an increase in the average number of times a dollar is spent to buy goods and services. Show the long-run effect of this change according to the monetarist view, ceteris paribus, by dragging one or both curves on the graph below. PRICE LEVEL REAL GDP SRAS AD AD SRASarrow_forwarda) Identify the four major tools of monetary policy. b) How can monetary policy address the problem of inflation?arrow_forward
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