Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

Exercise 11

KEY QUESTION Place "MON," "RET," or "MAIN" beside the statements that most closely reflect monetarist, rational expectations, or mainstream views, respectively:
a. Anticipated changes in aggregate demand affect only the price level; they have no effect on real output.
b. Downward wage inflexibility means that declines in aggregate demand can cause long-lasting recession.
c. Changes in the money supply M increase PQ ; at first only Q rises because nominal wages are fixed, but once workers adapt their expectations to new realities, P rises and Q returns to its former level.
d. Fiscal and monetary policies smooth out the business cycle.
e. The Fed should increase the money supply at a fixed annual rate.