Approaches To Policy In Context

Question 1

What is the quantity theory of money

Answer 1

Velocity of circulation= volume of transactions/amount of money

Volume of money= nominal income (income before tax)

Question 2

What is the Fisher equation of exchange?

Answer 2

(Price level x Real income)/money stock

Question 3

How did the Great Depression affect macroeconomics?

Answer 3

Up until the GD the only view there was was classical. However the economy was stuck in a recession and could not recover alone - e.g: the labour market was failing because the government kept calling to lower wages to increase employment but employment kept falling.
Keynes argued that the government had to use macroeconomic policy to boost income but it resulted in a Balance of Payments crisis.

Question 4

What was the monetarist approach in the 1980s?

Answer 4

Tying money to gold.