Contrast the Cambridge and Fisher versions of the quantity theory. Explain why the Cambridge version of the quantity theory represents a more modern monetary theory when compared to Fisher's version
What will be an ideal response?
In the Fischer version, money circulated at a fixed rate (velocity) which was completely exogenous and not related to the demand for money. The Cambridge focus was on the quantity theory as a theory of the demand for money. The proportional relationship between the quantity of money and the price level resulted from the fact that the proportion of nominal income people wished to hold in the form of money (k) was constant and the level of real output was fixed by supply conditions.
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A firm realizes that the market price has fallen below its average total costs, and it is now earning a loss. What is the best action for the firm to take in the short run?
A. Stay open if price is greater than average variable costs. B. Shut down immediately and pay fixed costs only. C. Stay open if total revenue is greater than fixed costs. D. Shut down if price is greater than average variable costs.
The fair trade movement:
A. attempts to inform and influence consumers' choices. B. is a set of laws around production processes in other nations. C. is designed to stop unfair trade practices. D. a big hindrance to international trade.
The market process is dynamic
Indicate whether the statement is true or false
A spending shock
a. causes unemployment and inflation to change in the same direction b. results in a movement along the AD curve c. shifts the AS curve d. first affects the economy through the money market e. causes equilibrium GDP to change at each price level