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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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What do Monetarists and Keynesians disagree on regarding inflation’s effect?
High inflation leads to misallocation of resources.
According to real business cycle theory, how do negative real shocks initially affect the economy?
They initially affect short run aggregate supply.
What is the Austrian solution to business cycles?
To limit government interference that distorts market price signals.
What is a criticism of the real business cycle theory?
It doesn't explain why negative shocks happen in the first place.
According to Keynesian theory, what should governments do in response to a recession?
Increase government spending.
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.
What does market monetarism allow that standard monetarism does not?
It allows the market to determine monetary policy.
What currency strategy does the Euro represent for the countries that use it?
Merged currency.
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.
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.