Monetarists argue that the money supply should A) grow at a rate equal to the average growth of real output. C) The total demand for money equals the asset demand for money. Because the nominal price of a dollar bill is fixed at 1, the relative price of money changes inversely to the price level. Monetary policy, one of the tools governments have to affect the overall performance of the economy, uses instruments such as interest rates to adjust the amount of money … Monetarists more likely to place emphasis on reducing inflation than keeping … Monetarists stress the importance of controlling the money supply to keep inflation low. People will, therefore, start selling securities and hold more money. Monetarists /classical economists believe wages are more flexible and likely to adjust downwards to prevent real wage unemployment. Real rates give a truer picture of the cost of money. A) Changes in the money supply have no effect on real variables. The equation of exchange reinforces the concept that changes in the money supply result in a direct long-term impact on price levels, production levels, and employment. is always a monetary phenomenon inflation is always and everywhere a monetary phenomenon If the money supply does not change, the price level will not change. c. Keynesians argue that the crowding-out effect is rather insignificant. (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) B) stimulate aggregate demand indirectly, through changes in interest rates and investment. Thus, the crux of the argument between the Keynesians and monetarists is simply which theory best explains and predicts the actual behaviour of the GNP, prices … Inflation as a Purely Monetary Phenomenon contd Most. An economic theory, the proponents of which argue that economic variations, such as changes in prices and output, are primarily the result of changes in the money supply. If the money supply increases in line with real output then there will be no inflation. Underlying the monetarist theory is the equation of exchange, which is expressed as MV = PQ.Here M is the supply of money, and V is the velocity of turnover of money (i.e., the number of times per year that the average dollar in the money supply is spent for goods and services), while P is the average price level at which each of the goods and services is sold, and Q represents the quantity of goods and services … Which of the following is true, according to monetarists? Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, … Monetarists say that central banks are more powerful than the government because they control the money supply. M.Friedman stated: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in … 6. People … Hence, they argue that the Central Bank should control the money supply and also set out a plan of long-term targets for monetary growth, as a rule, and avoid a discretionary monetary policy. Moreover, monetarists contend that velocity does not change in response to changes in supply of money. 38. The purpose of this paper is to explore the reasons of The Great Depression in the perspective of … Fiscal policy affects the goods market through A) changes in taxes … If the inflation rate is 2.1% and the … 5 pts Question 1 Monetarists believe that any change in the money supply will change prices, output, or both in the short run, True O False 5 pts Question 2 Monetarists believe that the economy will return to full employment in the long run on its own. Monetarists argue that if the Money Supply rises faster than the rate of growth of national income, then there will be inflation. (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) In … For controlling money supply, monetarists prescribe the use of direct instrument such as changes in cash reserve instead of changes in short-term interest rates. 37. Answer to: Market monetarists advocate that the Fed . But one school of economic thought, called monetarism, maintains that the money supply (the total amount of money in an economy) is the chief determinant of current dollar GDP in the short run and the price level over longer periods. E) If the economy is at full employment, increasing the money supply will increase the price level. Changes in these factors alter the velocity of money. Monetarists believe that an increase in the money supply will lead to: A. an increase in the price level. Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, … d. Monetarists argue that the crowding-out effect is rather large. monetarists argue that inflation in the … It raises the price of securities and lowers the rate of interest. B. an increase in nominal GDP C. an increase in real GDP. More specifically, the sprice level is proportional to the money supply (M ). Short run In the short run any increase in the money supply may lead to an increase in aggregate demand. True False 111.Monetarists argue that government policy interference in the economy is the primary cause of macroeconomic instability.     They also tend to watch real interest rates rather than nominal rates. Monetarists believe in controlling the supply of money that flows into the economy while allowing the rest of the market to fix itself. Monetarists are more critical of the ability of fiscal policy to stimulate economic growth. C) have a direct impact on aggregate demand. As a result, while GDP increases from Q 1 to Q Q 1 to Q (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) (4) In the long-run inflation is a monetary phenomenon. b. Monetarists advocate increasing the money supply by a constant rate year after year. An economic theory, the proponents of which argue that economic variations, such as changes in prices and output, are primarily the result of changes in the money supply. The neo- Keynesians argue that it is possible that changes in aggregate demand will cause changes in the demand for money which require the monetary authority to respond to the needs of trade and activity and so increase the supply of money. Monetarists are the group that explains changes in the relative price of money using a basic supply and demand model. In other words, they believe that money is ‘neutral’ in the long-run. INTRODUCTION TO MACROECONOMICS (CONTINUED………..):The Monetarist School Introduction to Economics Social Sciences Economics An economic theory, the proponents of which argue that economic variations, such as changes in prices and output, are primarily the result of changes in the money supply. Monetarists assert that The Depression resulted from a contraction of the money supply in the early 1930’s. Furthermore, monetarists argue that in order to encourage economic growth and stability, governments should increase the money supply with a steady annual rate, which should be linked to the expected growth in the gross domestic … Monetarists - AS & AD Moderate Monetarists would argue, as Classical economists do, that the economy may behave slightly differently in the short run from in the long run. While higher prices may temporarily cau~e fi~s to Increase … Most published rates are nominal rates, while real rates remove the effects of inflation. C) grow at a rate greater than the average growth of real output. The monetarists hold that changes in the money supply have a direct influence on aggregate expenditure and thus on income. True False 113.Monetarists argue that V in the equation of exchange is stable and thus a change in M will bring about a direct and … Monetarists assert that the objectives of monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in discretionary monetary policy. The market is expected to adjust to changes in demand so that the economy will always grow. holds that changes in the money supply are the primary cause of changes in nominal GDP. To begin, suppose the central bank purchased securities in the open market. Explore over 4,100 video courses D) have little impact on the inflation rate. If V is … Monetarism is a set of views based on the belief that the total amount of money in an economy is the primary determinant of economic growth. Monetarists argue that changes in the money supply. Keynesians advocate increasing the money supply during economic recessions but decreasing the money supply during economic expansions. D) Individuals hold idle balances for rational reasons. Monetarism today is mainly associated with the work of Milton Friedman, who was among the generation of economists to accept Keynesian economics and then criticise Keynes's theory of fighting economic downturns using fiscal … The view that changes in the money supply affect only the price level, without a change in the level of output, is called the strict monetarist view. True False 112.In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability. Monetarists, however, argue that increasing or decreasing the supply of money in the short run can have significant effects on output and employment. B) grow at a rate slower than the average growth of real output. Monetarists believe that changes in the money supply will have no effect on real income in the long-run. Monetarists thus are critical of activist … This may, in turn, lead to more employment, but before long people's expectations will catch up and as we saw with the expectations … Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, … If the price level rises by 2%, then the relative value of money falls by the same ratio, by definition. Monetarists also point out those changes in the money supply take place because the monetary authority, the Central Bank, allows them. Monetarists believe the government should only enforce the law and regulate the money supply through the interest rate, and that the economy may dip into recession but will maintain a growth rate over time. e. All of the answers are correct. D) should continually change each year upward or downward depending upon last ye unemployment rate. How does this long-run neutrality come about (hint: Phillips curve) and what does it mean to say that money is ‘neutral’? Monetarists generally argue that the impact lags of monetary policy—the lags from the time monetary policy is undertaken to the time the policy affects nominal GDP—are so long and variable that trying to stabilize the economy using monetary policy can be destabilizing. Let us analyse an expansionary monetary policy followed by monetarists. Hence, changes in velocity from year to year can be easily anticipated. Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, … Keynesians, however, stress the possibility of endogenous changes in … Monetarists argue that the factors which alter velocity change gradually and predictably. B) The velocity of money increases as real GDP increases. Monetarists argue that the velocity is stable and predictable because people tend to hold the same amount ot m~ney over time. Monetarists argue that a monetary rule would tie increases in the money supply to the typical rightward shift of long-run aggregate supply. In view of the direct link between changes in the money supply and aggregate demand, this would ensure that the AD curve would shift rightward, as from AD 1 to AD 2, each year. Keynesians, on the other hand, argue that The Depression was caused by a fail in autonomous spending, particularly investment and, and, within investment, housing, spurred a general collapse. Question 8 options: A) must be adjusted frequently in response to ever-changing economic conditions. Changes in the supply of money do not appear to change the underlying conditions in the economy. (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) Therefore, according to monetarists, an increase in the money supply wI!1 dIrectly lead to an increase in nominal GDP, which will only cause inflation when the economy IS alr~ady producing at fun-employment output. Friedman (1970) argued that there is a direct causal relationship between the money supply and the rate Monetarists believe that central banking is necessary to promote equilibrium in supply and demand; … However, in the short-run, it is argued that money change can result in an inflation effect and output effect. An economic theory, the proponents of which argue that economic variations, such as changes in prices and output, are primarily the result of changes in the money supply. True O False es Question 3 5 pts Assume the Fed's target for unemployment is 4% to 5%, and its target for inflation is 2% to 3%. 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