Discuss the following views concerning the impact of monetary policy:
a. classicals
b. Keynesians
c. monetarists
d. "modern view"
a. The classicals believe in the quantity theory of money, which sees a proportional relationship between prices and the quantity of money in circulation. Changes in the money supply cause a proportional change in prices and do not affect real output.
b. Keynesians believe monetary policy might be somewhat ineffective at stimulating real output (and its effects unpredictable) during a recession because of changes in the velocity of money.
c. Monetarists believe monetary policy exerts a powerful influence on both prices and real output but that the lengthy and unpredictable time lag between policy implementation and impact make it an improper tool in stabilizing cyclical fluctuations in the economy.
d. The modern view stresses the difference between whether monetary policy is anticipated or unanticipated. It asserts that unanticipated monetary policy can influence real output in the short run but will only influence prices in the long run. Anticipated monetary policy, on the other hand, will influence prices in both the short and long run.
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A) complements. B) substitutes. C) normal. D) inferior.
A shift in tastes toward American goods ________ net exports in the U.S. and causes the IS curve to shift to the ________ in the U.S., everything else held constant
A) decreases; right B) decreases; left C) increases; right D) increases; left
Suppose you observe that minor changes in supply seem to cause dramatic changes in price. You would conclude that
a. demand is unit elastic b. demand is elastic c. demand is inelastic d. demand is perfectly inelastic
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A) the percentage of income which a typical family pays in tax. B) the average rate of taxation in the economy. C) the deductions which are permitted for child care and medical expenses. D) the extra tax due on an extra dollar of income.