Compare the Keynesian and monetarist views about how monetary tools should be used.
What will be an ideal response?
Keynesians believe that interest rates are the critical policy lever and that the money supply should be changed in order to achieve whatever interest rate is needed to shift aggregate demand. Monetarists believe that the money supply itself is the critical policy lever and that it should be expanded at a steady and predictable rate to maintain price stability.
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The K-Nine dog food company is considering the purchase of additional canning equipment. They expect that adding the equipment will yield $200,000 at the end of the first year and $250,000 at the end of the second year and then nothing after that. At which of the following prices and interest rates would K-Nine buy the equipment?
a. $415,000 if the interest rate is 5% b. $419,000 if the interest rate is 4% c. K-Nine would buy the equipment in both cases. d. K-Nine would not buy the equipment in either case.
Contractionary monetary policy affects domestic income in a way that causes:
A. a fall in the value of the dollar. B. output to rise. C. exports to fall. D. imports to fall.
Based on the figure below. Starting from long-run equilibrium at point C, an adverse inflation shock that increases inflation from ? to ?1 will lead to a short-run equilibrium at point ________ creating _____gap. 
A. B; a recessionary B. A; an expansionary C. B; an expansionary D. A; a recessionary
In actual practice, does the Fed monetize the debt?
A. No, it did not do so even with large deficits in the 1980s and early 2000s. B. No longer, although it monetized much of the deficit in the 1980s. C. Yes, although it monetizes less now than in the 1980s. D. Yes, it has monetized the deficit steadily since the early 1970s.