Chapter 35

Question 1

most famous proponent of monetarism

Answer 1

Milton Friedman.

Question 2

monetarism focuses on:

Answer 2

the decisions that central banks make with respect to the money supply

Question 3

Which of the following equations is key to understanding monetarism?

Answer 3

M × v = P × Y

Question 4

According to the quantity theory of money, in the long run, the amount of money in the economy:

Answer 4

doesn’t influence real output or real employment

Question 5

What are the two potential dangers for the economy, according to monetarism?

Answer 5

too much inflations and too little inflation

Question 6

In the 1970s, Keynesians accepted high inflation because _______, but monetarists argued that _______.

Answer 6

in the short run, inflation leads to higher economic output; eventually inflation ceases to stimulate the economy

Question 7

Inflation can stimulate the economy in the short run because:

Answer 7

people are confused about which prices are rising due to inflation and which are rising due to changes in demand.

Question 8

Monetarists and Keynesians agree that nominal wages are sticky. Therefore, they tend to have similar beliefs about which of the following?

Answer 8

deflation can cause a recession

Question 9

monetarists tend to favor

Answer 9

constraining the central banks through rules

Question 10

Which of these is NOT among the criticisms of monetarism that Professor Cowen discusses in the video?

Answer 10

monetarist business cycle remedies tend to lead to increasing government debt

Question 11

the Federal Reserve is

Answer 11

the US’s central bank

Question 12

the Fed can influence

Answer 12

the money supply

Question 13

Which of the following is true about the Fed?

Answer 13

it has more power than any other institution

Question 14

The Federal Reserve has the power to:

Answer 14

create money

Question 15

Monetary policy is limited in that:

Answer 15

it can only affect real growth in the short run.

Question 16

Why doesn’t GDP change in the long run when the money supply changes?

Answer 16

Because in the long run, GDP is determined by the fundamental factors of growth, not the money supply.

Question 17

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?

Answer 17

sticky prices that slow the adjustment of the price level

Question 18

Which of the following is NOT mentioned as a difficulty the Fed faces when trying to affect aggregate demand in the short run?

Answer 18

sticky wages and prices

Question 19

Which of the following is true about monetary policy?

Answer 19

It is ineffective in the long run and difficult in the short run.

Question 20

Defining what money is:

Answer 20

isn’t easy, and this makes monetary policy more difficult.

Question 21

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

Answer 21

where to apply monetary policy tools.

Question 22

If consumers become less confident and begin to borrow and spend less, what will happen in the dynamic AD/AS model?

Answer 22

AD curve will shift to the left

Question 23

In the best-case scenario, what is the Fed’s response to a negative demand shock?

Answer 23

The Fed will increase the growth rate of the money supply to offset the negative demand shock.

Question 24

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?

Answer 24

The time that it takes for the Fed to decide on a course of action

Question 25

Economic data:

Answer 25

are sometimes revised months or years after their initial release.

Question 26

How long does it take for the Fed’s actions to have their intended effect?

Answer 26

6 - 18 months

Question 27

The tools of the Federal Reserve:

Answer 27

sometimes rely on other actors, such as banks, who can sometimes be unreliable.

Question 28

What would happen if banks decided to stop lending altogether and instead held on to enormous amounts of cash?

Answer 28

The tools of monetary policy would become less effective in response to a recession.

Question 29

If the Fed overshoots when responding to a negative demand shock:

Answer 29

it will cause inflation, which the Fed will fight by reducing the growth rate of the money supply.

Question 30

The cost of stimulating the economy in the 1970s was:

Answer 30

a severe recession with high unemployment in the 1980s.

Question 31

Janet Yellen was the first women

Answer 31

to be chair of the federal reserve

Question 32

Ben Bernanke said that at the time she was appointed as Fed chair, Janet Yellen had:

Answer 32

more experience as a Federal Reserve policymaker than almost any other chair

Question 33

When Janet Yellen was born in Brooklyn, New York, it was

Answer 33

still recovering from the Great Depression.

Question 34

According to the video, at Brown University, Janet Yellen learned about:

Answer 34

Keynesian economics.

Question 35

Keynesian economics asserts that the government

Answer 35

can take actions to return the economy to its potential and reduce busts and booms.

Question 36

One of Janet Yellen’s great contributions to economics is the notion that:

Answer 36

firms can price-discriminate by bundling commodities together.

Question 37

At which of the following institutions did Janet Yellen NOT have a position?

Answer 37

Yale

Question 38

In which of the following fields of economics does the video NOT mention Janet Yellen having a remarkable impact?

Answer 38

fiscal policy

Question 39

Christina Romer and Ben Bernanke suggest in the video that Janet Yellen was among the first to recognize:

Answer 39

just how bad the financial crisis of 2007–08 was going to be.

Question 40

Janet Yellen took over leadership of the Federal Reserve at a time that was very challenging because the Federal Reserve:

Answer 40

needed to work to unwind many unusual policies that were put in place during the Great Recession.