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A: This will be explained through a graph below:
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Explain the monetaey policy
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- According to Monetarists, what should the government do if unemployment is 4% and inflation is 12%? Select one: a. Decrease the supply of money b. Decrease government spending c. Raise taxes d. Do nothing e. Lower interest ratesThe Monetarists believe that a monetary restraint can actually lower interest rates. How do they arrive at that conclusion?The demand for money curve is drawn
- According to Monetarism, when does an increase in money supply change both Real GDP andprice level? In the short run or in the long run? Explain your answer using a diagram.Why did Friedman and the Monetarists believe that monetary misuse accompanied every severe recession every significant inflation over the past century?The monetary policy video showed that the "monetarists" are opposed to using monetary policy as a stabilization tool. They
- Discuss the unintended consequences of the various monetary interventions implemented.According to Monetarism, when does an increase in money supply change only price level andnot Real GDP? In the short run or in the long run? Explain your answer using a diagram.True or False? In an assigned reading, Milton Friedman indicated that he agreed with John Maynard Keynes's explanation of the causes of the Great Depression. True False As discussed in class, which of the following was argued by monetarists of the 1970s? in a free market economy, central banks can never effectively manipulate money supply, because lending activity is subject to rapid changes an expansion of the money supply that is less than the growth of output during the same period will generally result in deflation O effects of changes in money supply are seen in output before they are seen in prices central banks should focus on minimizing the legal interest rates paid to depositors, as ensuring the safety of banks was the most important goal
- What is a monetary rule? What is its purpose? Illustrate and explain the implementation of a monetary rule.What is the Unpleasant Monetarist Arithmetic? Were its predictions about the US economy correct? How do you know?Milton Friedman, the leader for Monetarism had proposed several important arguments regarding the implementation of Monetary Policy. The arguments were listed as: Proposition 1: Monetary Policy has powerful short-run effects on the real economy. In the long run, however, changes in the money supply have their primary effect on the price level. Proposition 2: Despite the powerful short-run effect of money on the economy, there is little scope for using Monetary Policy actively to try to smooth business cycle. Proposition 3: Even if there is some scope for using Monetary Policy to smooth business cycles, the Central Bank (the Federal Reserve) cannot be relied on to do so effectively. Proposition 4: The Central Bank (the Federal Reserve) should choose a specific monetary aggregate (such as M1 or M2) and commit itself to making that aggregate grow at a fixed percentage rate, year in and year out. Keynesians economists’ response to the above propositions with this statement: “Monetary…