Chapter 35 Flashcards
most famous proponent of monetarism
Milton Friedman.
monetarism focuses on:
the decisions that central banks make with respect to the money supply
Which of the following equations is key to understanding monetarism?
M × v = P × Y
According to the quantity theory of money, in the long run, the amount of money in the economy:
doesn’t influence real output or real employment
What are the two potential dangers for the economy, according to monetarism?
too much inflations and too little inflation
In the 1970s, Keynesians accepted high inflation because _______, but monetarists argued that _______.
in the short run, inflation leads to higher economic output; eventually inflation ceases to stimulate the economy
Inflation can stimulate the economy in the short run because:
people are confused about which prices are rising due to inflation and which are rising due to changes in demand.
Monetarists and Keynesians agree that nominal wages are sticky. Therefore, they tend to have similar beliefs about which of the following?
deflation can cause a recession
monetarists tend to favor
constraining the central banks through rules
Which of these is NOT among the criticisms of monetarism that Professor Cowen discusses in the video?
monetarist business cycle remedies tend to lead to increasing government debt
the Federal Reserve is
the US’s central bank
the Fed can influence
the money supply
Which of the following is true about the Fed?
it has more power than any other institution
The Federal Reserve has the power to:
create money
Monetary policy is limited in that:
it can only affect real growth in the short run.
Why doesn’t GDP change in the long run when the money supply changes?
Because in the long run, GDP is determined by the fundamental factors of growth, not the money supply.
Which of the following explains why the Fed is able to have a dramatic effect on aggregate demand and real output in the short run?
sticky prices that slow the adjustment of the price level
Which of the following is NOT mentioned as a difficulty the Fed faces when trying to affect aggregate demand in the short run?
sticky wages and prices
Which of the following is true about monetary policy?
It is ineffective in the long run and difficult in the short run.
Defining what money is:
isn’t easy, and this makes monetary policy more difficult.
Professor Tabarrok suggests that monetary policy is both an art and a science because of the complexity of answering all of the following questions EXCEPT
where to apply monetary policy tools.
If consumers become less confident and begin to borrow and spend less, what will happen in the dynamic AD/AS model?
AD curve will shift to the left
In the best-case scenario, what is the Fed’s response to a negative demand shock?
The Fed will increase the growth rate of the money supply to offset the negative demand shock.
Which of these is NOT one of the issues that makes it difficult for the Fed to choose the right course of action at the right time?
The time that it takes for the Fed to decide on a course of action
Economic data:
are sometimes revised months or years after their initial release.
How long does it take for the Fed’s actions to have their intended effect?
6 - 18 months
The tools of the Federal Reserve:
sometimes rely on other actors, such as banks, who can sometimes be unreliable.
What would happen if banks decided to stop lending altogether and instead held on to enormous amounts of cash?
The tools of monetary policy would become less effective in response to a recession.
If the Fed overshoots when responding to a negative demand shock:
it will cause inflation, which the Fed will fight by reducing the growth rate of the money supply.
The cost of stimulating the economy in the 1970s was:
a severe recession with high unemployment in the 1980s.
Janet Yellen was the first women
to be chair of the federal reserve
Ben Bernanke said that at the time she was appointed as Fed chair, Janet Yellen had:
more experience as a Federal Reserve policymaker than almost any other chair
When Janet Yellen was born in Brooklyn, New York, it was
still recovering from the Great Depression.
According to the video, at Brown University, Janet Yellen learned about:
Keynesian economics.
Keynesian economics asserts that the government
can take actions to return the economy to its potential and reduce busts and booms.
One of Janet Yellen’s great contributions to economics is the notion that:
firms can price-discriminate by bundling commodities together.
At which of the following institutions did Janet Yellen NOT have a position?
Yale
In which of the following fields of economics does the video NOT mention Janet Yellen having a remarkable impact?
fiscal policy
Christina Romer and Ben Bernanke suggest in the video that Janet Yellen was among the first to recognize:
just how bad the financial crisis of 2007–08 was going to be.
Janet Yellen took over leadership of the Federal Reserve at a time that was very challenging because the Federal Reserve:
needed to work to unwind many unusual policies that were put in place during the Great Recession.
