Exam 18: Events and Ideas

Keynes suggested that money is:

The Great Moderation consensus regarding the use of monetary policy to fight recessions is that expansionary monetary policy:

Classical macroeconomists believed that monetary policy should be used to fight recessions.

Monetarists argue that:

Monetarism suggests that:

The Keynesian school of thought is that expansionary monetary policy has very little or no effect on output.

The Great Moderation consensus is that expansionary monetary policy affects only prices, not output.

Classical macroeconomists believed that government could reduce the unemployment rate to a permanently low rate.

Prior to the 1930s, classical economics was the predominant theory about the behavior of the aggregate price level, aggregate output, and the appropriate role of monetary policy. Describe how classical economists believed the economy would be affected by an increase in the money supply.

Keynes emphasized short-run effects of aggregate demand on aggregate output.

According to classical economists, the short-run aggregate supply curve is _____, while according to Keynesian economists, the short-run aggregate supply curve is _____.

Classical economists focused mainly on:

New classical economics:

Real business cycle theory argues that:

The classical macroeconomists believed that fiscal policy was even less effective than monetary policy.

The policies that seemed to be effective during the Great Moderation seemed to be inadequate to fight the Great Recession.

Rational expectations theory asserts that because people have rational expectations, if a policy of reducing the money supply is used:

If wages and prices are perfectly flexible, a decrease in aggregate demand will cause a(n) _____ in the price level and _____ in unemployment.

The belief that fluctuations in the rate of growth of factor productivity cause the business cycle is:

Friedman argued that with a _____ money supply, velocity is so _____ that there's not much point in using monetary policy.