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Monetarism
(1) focuses on the money supply, (2) holds that markets are highly competitive, and (3) says that a competitive market system gives the economy a high degree of macroeconomic stability
Equation of exchange
Supply of monetary times the velocity of money equals the price level times the physical volume of all goods and services produced
Significant increases
________ in investment can produce demand- pull inflation.
Real-business-cycle theory
Business fluctuations result from significant changes in technology and resource availability
Coordination failures
Occur when people fail to reach a mutually beneficial equilibrium because they lack a way to coordinate their actions
predictable relationship
There is a(n) ________ between the money supply and nominal GDP.
Rational expectations theory
Businesses, consumers, and workers expect changes in policies or circumstances to have certain effects on the economy and, in pursuing their own self-interest, take actions to make sure those changes affect them as little as possible
reduction of aggregate demand
If a(n) ________ is expected, both firms and households will cut back their investment spending.
Velocity
________ in the equation of exchange is relatively stable.
New classical economics
When the economy occasionally diverges from its full-employment output, internal mechanisms within the economy will automatically move it back to that output
Price-level surprises
Unanticipated changes in the price level
Efficiency wage
A wage that minimizes the firm’s labor cost per unit of output
Insider-outsider theory
Outsiders may not be able to underbid existing wages because employers may view the nonwage cost of hiring them to be prohibitive
Monetarists
________ believe that shifts in short- run aggregate supply may not occur for 2 or 3 years or even longer.
Monetarists
________ argue that a monetary rule would tie increases in the money supply to the typical rightward shift of long- run aggregate supply.
Monetarists
________ are particularly strong in their opposition to expansionary fiscal policy.
Mainstream view
The prevailing macroeconomic perspective of the majority of economists
Monetarism
(1) focuses on the money supply, (2) holds that markets are highly competitive, and (3) says that a competitive market system gives the economy a high degree of macroeconomic stability
Exchange of exchange
Supply of monetary times the velocity of money equals the price level times the physical volume of all goods and services produced
Real-business-cycle theory
Business fluctuations result from significant changes in technology and resource availability
Coordination failures
Occur when people fail to reach a mutually beneficial equilibrium because they lack a way to coordinate their actions
Rational expectations theory
Businesses, consumers, and workers expect changes in policies or circumstances to have certain effects on the economy and, in pursuing their own self-interest, take actions to make sure those changes affect them as little as possible
New classical economics
When the economy occasionally diverges from its full-employment output, internal mechanisms within the economy will automatically move it back to that output
Price-level surprises
Unanticipated changes in the price level
Efficiency wage
A wage that minimizes the firms labor cost per unit of output
Insider-outsider theory
Outsiders may not be able to underbid existing wages because employers may view the nonwage cost of hiring them to be prohibitive
Inflation targeting
The Fed would be required to announce a targeted band of inflation rates for some future period
Inflation targeting
The Fed would be required to announce a targeted band of inflation rates for some future period
Note 
Flashcard (187)