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. True False 112.In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability. Monetarists are more critical of the ability of fiscal policy to stimulate economic growth. True False 111.Monetarists argue that government policy interference in the economy is the primary cause of macroeconomic instability. How does this long-run neutrality come about (hint: Phillips curve) and what does it mean to say that money is ‘neutral’? Monetarists argue that the factors which alter velocity change gradually and predictably. Keynesians advocate increasing the money supply during economic recessions but decreasing the money supply during economic expansions. Explore over 4,100 video courses B) stimulate aggregate demand indirectly, through changes in interest rates and investment. 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 believe that changes in the money supply will have no effect on real income in the long-run. Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, … Monetarists are the group that explains changes in the relative price of money using a basic supply and demand model. Keynesians, however, stress the possibility of endogenous changes in … (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) C) grow at a rate greater than the average growth of real output. Answer to: Market monetarists advocate that the Fed . In … The monetarists hold that changes in the money supply have a direct influence on aggregate expenditure and thus on income. People … 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 stress the importance of controlling the money supply to keep inflation low. Inflation as a Purely Monetary Phenomenon contd Most. Monetarists also point out those changes in the money supply take place because the monetary authority, the Central Bank, allows them. A) Changes in the money supply have no effect on real variables. Monetarists argue that if the Money Supply rises faster than the rate of growth of national income, then there will be inflation. Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, … 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 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 argue that inflation in the … D) Individuals hold idle balances for rational reasons. Monetarists /classical economists believe wages are more flexible and likely to adjust downwards to prevent real wage unemployment. (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) Because the nominal price of a dollar bill is fixed at 1, the relative price of money changes inversely to the price level. Question 8 options: A) must be adjusted frequently in response to ever-changing economic conditions. This may, in turn, lead to more employment, but before long people's expectations will catch up and as we saw with the expectations … E) If the economy is at full employment, increasing the money supply will increase the price level. Monetarists argue that changes in the money supply. (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) 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. Changes in these factors alter the velocity of money. b. Monetarists advocate increasing the money supply by a constant rate year after year. 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. The purpose of this paper is to explore the reasons of The Great Depression in the perspective of … Monetarists believe that an increase in the money supply will lead to: A. an increase in the price level. Monetarists argue that a monetary rule would tie increases in the money supply to the typical rightward shift of long-run aggregate supply. To begin, suppose the central bank purchased securities in the open market. More specifically, the sprice level is proportional to the money supply (M ). 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. Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, … The market is expected to adjust to changes in demand so that the economy will always grow. 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 argue that the velocity is stable and predictable because people tend to hold the same amount ot m~ney over time. 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 … Changes in the supply of money do not appear to change the underlying conditions in the economy. 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. B. an increase in nominal GDP C. an increase in real GDP. INTRODUCTION TO MACROECONOMICS (CONTINUED………..):The Monetarist School Introduction to Economics Social Sciences Economics 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. Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, … (4) In the long-run inflation is a monetary phenomenon.   B) The velocity of money increases as real GDP increases. d. Monetarists argue that the crowding-out effect is rather large. D) should continually change each year upward or downward depending upon last ye unemployment rate. People will, therefore, start selling securities and hold more money. As a result, while GDP increases from Q 1 to Q Q 1 to Q holds that changes in the money supply are the primary cause of changes in nominal GDP. B) grow at a rate slower than the average growth of real output. However, in the short-run, it is argued that money change can result in an inflation effect and output effect.   They also tend to watch real interest rates rather than nominal rates. Friedman (1970) argued that there is a direct causal relationship between the money supply and the rate 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 … Monetarists argue that the money supply should A) grow at a rate equal to the average growth of real output. If the money supply increases in line with real output then there will be no inflation. Monetarists more likely to place emphasis on reducing inflation than keeping … e. All of the answers are correct. C) The total demand for money equals the asset demand for money. 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. c. Keynesians argue that the crowding-out effect is rather insignificant. 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. Monetarists say that central banks are more powerful than the government because they control the money supply. 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. While higher prices may temporarily cau~e fi~s to Increase … The assumption of stable and predictable V is crucial to the monetarist theory. 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. Fiscal policy affects the goods market through A) changes in taxes … 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 … C) have a direct impact on aggregate demand. 6. 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. 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 … If the inflation rate is 2.1% and the … Let us analyse an expansionary monetary policy followed by monetarists. If V is … Real rates give a truer picture of the cost of money. Monetarists believe in controlling the supply of money that flows into the economy while allowing the rest of the market to fix itself. Monetarists assert that The Depression resulted from a contraction of the money supply in the early 1930’s. Monetarists, however, argue that increasing or decreasing the supply of money in the short run can have significant effects on output and employment. In other words, they believe that money is ‘neutral’ in the long-run. 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