Do monetarists favor rules or discretionary policy? Why?
What will be an ideal response?
Monetarists favor fixed policy rules. They believe the long-run aggregate supply curve is vertical, so any change in the money supply will affect the price level but not output. They advocate expanding the money supply at a steady, predictable rate.
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According to the table, the price of Big Macs converted to U.S. dollars varies widely around the world. This shows that Big Mac pricing does NOT follow the theory of
A) Ricardian equivalence. B) purchasing power parity. C) supply and demand. D) real versus nominal prices.
Suppose that a typical German factory can produce 20 cameras or 1 computer in an hour, and that a typical American factory can produce 10 cameras or 1 computer in an hour. The opportunity cost of 20 cameras in terms of computers in Germany is
A) 10 computers per camera. B) 2 computers per camera. C) 1 computer per camera. D) 1/20 of a computer per camera.
Critics of debt relief make all of the following arguments EXCEPT
A) it would be wasted money since the conditions that caused the debt would be likely to persist. B) countries with large foreign debts are poorly administered. C) debt relief can quickly fuel a new round of borrowing that simply restores debt to prior levels. D) debt relief will encourage other nations to borrow excessively with the hope that their debts may be forgiven in the future. E) the cost of debt relief to the most severely indebted countries is too large for the high income countries to afford.
By adjusting its spending level, the government can try to achieve target employment and GDP levels through
a. countercyclical monetary policy b. buying bonds on the open market c. shifting the Phillips curve d. wage and price controls e. countercyclical fiscal policy