What reasons do monetarists give for downgrading the importance of fiscal policy relative to monetary policy?
What will be an ideal response?
Monetarists downgrade fiscal policy’s importance because of the so-called crowding-out effect or because of the way in which fiscal policy is financed. If government finances increased spending by running a deficit and selling bonds, then this government borrowing will increase the demand for money, raise the interest rate, and crowd out much private investment. Hence, the net effect of a budget deficit based on borrowing from the public is weak. If the government finances the budget deficit through the creation of new money, then there would not be crowding out, but the increase in the money supply is really monetary policy, not fiscal policy in this case.
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Referring to Figure 19.2, the effect of an increase in Japanese prices is represented by a movement from point
A) d to c. B) c to d. C) a to d. D) a to b.
Which of the following exemplifies a cause of increased international trade?
a. The Canadian government imposed new tariffs on imported maple syrup, whiskey, and ketchup. b. Modern shipping containers eliminate the need to unload and reload goods at each point of transfer. c. Small Business Saturday encourages holiday shoppers to patronize local brick-and-mortar stores. d. Green economic initiatives stress the benefits of pursuing environmental and social sustainability.
If autonomous consumption decreases, then
A. There will be a movement to the left along the AD curve. B. The AD curve will not be affected. C. The AD curve will shift to the right. D. The AD curve will shift to the left.
Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?
A. Which output will be produced? B. How is the output to be produced? C. How can the system accommodate change? D. Who is to receive the output?