Monetarism - Intermediate Macro Exam 2

Monetarists and Keynesians disagree that High inflation leads to …

A misallocation of resources

What is not a reason that monetarists want to constrain the Fed?

Policymakers have institutional incentives to keep business cycles unstable.

What are some problems with monetarism?

Stabilizing one measure of the money supply may destabilize other measures of it.

It leaves the Fed unable to act in case of negative real shocks and velocity shocks.

How does market monetarism differ from standard monetarism?

It allows the Fed discretion to react to velocity shocks.

Economic growth is measured as the growth rate of…

Real GDP Per Capita

What are the 3 building blocks for Monetarism?

1. Quantity Theory of Money: MxV=PxYr

2. Improved Phillips Curve: (Short term, Rational Expectations)

3. Open Economy: Balance of payments and exchange rates.

What is the Quantity Theory Of Money (QTM)?

Money Supply x Velocity Of Money = Price Level (inflation) x Real GDP

(MxV=PxYr)

Monetarists believe Velocity is constant. True or False

True

Changes in the money supply (M), can increase output in the ____. But only impact price level in the ___.

Short Run.

Long Run.

Inflation is seen as an excessive growth of the money supply. True or False

True

Monetarists say the FED caused the Great Depression by…

Allowing the money supply to contract extremely.

Monetarists believe deflationary pressures lead to a recession. True or False.

True