Macroeconomics - Business Cycle Theories and Currency Exchange

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A collection of flashcards covering key concepts and theories in macroeconomics related to business cycles and currency exchange.

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1
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What do Monetarists and Keynesians disagree on regarding inflation’s effect?

High inflation leads to misallocation of resources.

2
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According to real business cycle theory, how do negative real shocks initially affect the economy?

They initially affect short run aggregate supply.

3
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What is the Austrian solution to business cycles?

To limit government interference that distorts market price signals.

4
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What is a criticism of the real business cycle theory?

It doesn't explain why negative shocks happen in the first place.

5
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According to Keynesian theory, what should governments do in response to a recession?

Increase government spending.

6
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What is a major criticism of standard monetarist business cycle theory?

It leaves central banks unable to act in the case of negative real shocks.

7
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What does market monetarism allow that standard monetarism does not?

It allows the market to determine monetary policy.

8
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What currency strategy does the Euro represent for the countries that use it?

Merged currency.

9
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What does it mean when a currency strategy is a 'hard peg'?

It is a fixed exchange rate, like Saudi Arabia's Rial to US Dollar.

10
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What happens to a country’s currency when its central bank prints money to buy foreign currency?

It can cause inflation in the home country.