ECON1132 Lecture Notes - Lecture 22: Money Supply, Lucas Critique, Rational Expectations

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29 Apr 2015

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Econ1132: principles of macroeconomics- lecture 22: monetarism and rational. A school of thought closely allied to the classical, versus the keynesian, view of the macro economy, but with a particular focus on the role of money. Monetarism holds that changes in the money supply are the major determinant of short run changes in nominal gdp (pq) and of prices (p) in the long run. The rate at which money turns over in gdp transactions. In terms of growth rates, the growth of the money supply (plus or minus any growth in velocity) is equal to inflation plus the growth of real output. Velocity is stable, perhaps rising over time but at a predictable rate. It may be higher at higher interest rates but again by a predictable amount. Prices and wages are relatively flexible, thus q tends toward q*, the level given by resources and technology.

Related Questions

10. The monetarist program undertaken during the 1979-1982 period resulted in:

A. a reduction in the inertial rate of inflation.

B. a dramatic rise in unemployment.

C. very high-interest rates.

D. all of the above.

E. none of the above.

11. Some economists have suggested replacing the emphasis on controlled money supply as found in monetarism with controlled growth in nominal GDP. Money supply targets, then:

A. would be determined so as to attain the desired nominal GDP level.

B. would be eliminated.

C. could be set arbitrarily.

D. would be settled on following the discovery of an acceptable level of unemployment.

E. all of the above are true.

12. Which of the following is NOT a keystone of monetarism?

A, The money supply is the determinant of nominal GDP growth.

B. Fiscal policy can raise interest rates and thereby raise velocity.

C. Prices and wages are relatively stable.

D.The private sector is relatively stable.

E. All of the above are keystones.

13. It follows from the assumptions of the rational-expectations macroeconomics that:

A. most unemployment is voluntary.

B. monetary policy can work in the short run but not in the long run.

C. fiscal policy is hamstrung because of delays in the legislative process in Congress.

D. all policy that is predictable will be undone by clever citizens.

E. all are true.

14. Which of the following is true according to monetarist theory?

A. The IS curve is quite steep while the LM Curve is relatively flat.

B. Changes in the money supply have their greatest effect on prices.

C. Fiscal policy can do little to improve economic conditions, but much to worsen them.

D. Real GDP stays at or near potential output most of the time.

E. All of the above are true.

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ECON1132 Lecture Notes - Lecture 22: Money Supply, Lucas Critique, Rational Expectations

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